The high price of diamonds relative to the price of water is due to the fact that
A) total benefits from water are relatively low.
B) total benefits from diamonds are relatively high.
C) marginal benefits from water are relatively low.
D) marginal benefits from diamonds are relatively low.
E) none of the above is true.

Question

Quizplus · Accepted Answer

The high price of diamonds relative to water is primarily because the marginal benefits from water are relatively low. This is due to the fact that water is abundant and essential for life, leading to its marginal utility decreasing quickly as consumption increases. On the other hand, diamonds are scarce and not essential, making their marginal utility and thus their price higher.

The High Price of Diamonds Relative to the Price of Water