At low levels of consumption, water has a much higher marginal utility than diamonds and thus is more valuable. People usually consume water at much higher levels than they do diamonds and thus the marginal utility and price of water are lower than that of diamonds.
Why is water so cheap while diamonds are so expensive?
Economically speaking, diamonds are more expensive than water because of supply and demand . In this case, it's more because of supply than because of demand. ... So the demand for water should be high. But there is so much water around that it is relatively cheap.
Why should diamonds be priced so high and water be priced so low even when water is essential to sustain life which diamonds are not?
Diamonds are high-priced because the demand is high relative to the limited quantity available . Water is inexpensive because it is typically fairly abundant, but if one is dying of thirst, then it would have a much higher value-in-exchange–conceivably even greater than diamonds.
Why are diamonds more expensive than water quizlet?
-The price of a good is equal to the marginal utility of the last unit consumed. ... – Water is more valuable than diamonds in terms of total utility , but diamonds have a higher marginal utility, and thus a higher price.
Why does a bottle of water is very cheap relative to a very small piece of diamond explain?
Because water is so much more abundant than diamonds , there is a much larger supply of it. In general, the greater the supply of something, the lower the equilibrium price. This is why diamonds cost more than water even though water is a necessity and diamonds are not.
Could a water bottle be more valuable than a diamond?
The first bottle of water is worth more to you than any amount of diamonds , but eventually, you have all the water you need. After a while, every additional bottle becomes a burden. That's when you begin to choose diamonds over water.
Is water a free good?
A free good is a good needed by society but available with no opportunity cost. ... Water is usually another free good . If you live by a river, you can take water without reducing the amount available to others. Though in some areas, water can become scarce in drought conditions – then water is no longer a free good.
Who Solved the diamond water paradox?
answer to the so-called “diamond-water paradox,” which economist Adam Smith pondered but was unable to solve. Smith noted that, even though life cannot exist without water and can easily exist without diamonds, diamonds are, pound for pound, vastly more valuable than water.
Is Diamond Water still a thing?
Diamond water
Asa Soltan Rahmati is a free spirit Persian who loves all things holistic. ... Years later you can still spot Diamond water being sold at your local Ross store.
What is the key to solving the diamond water paradox?
The solution to the paradox depends on knowing the difference between total and marginal utility and the law of diminishing marginal utility . By saying that water is essential to life and diamonds are not essential to life, we signify that water gives us high total utility relative to diamonds.
What is marginal utility of consumption?
Marginal utility is the added satisfaction that a consumer gets from having one more unit of a good or service . ... Positive marginal utility occurs when the consumption of an additional item increases the total utility.
What is the most important reason why diamonds are expensive quizlet?
Diamonds are high in price because they are relatively scarce and thus have high marginal utility . Water, however, is considered more useful than diamonds because it has much greater total utility. The facts that consumption takes time and time is a scarce resource can be included in the marginal-utility theory.
What do you think will happen to marginal utility that is the additional satisfaction gained from consuming each additional good as one consumes more of a good?
6.01 What do you think will happen to marginal utility (that is, the satisfaction gained from consuming each additional good) as one consumes more of a good? The more of something you consume, the less satisfaction another unit will bring you .
Why is water which is essential to life so cheap while diamonds which are not essential to life so expensive?
Luckily the supply of water is vast, meaning that it can be supplied at a very low price. Water is cheap at the margin , and therefore cheap to buy. But, the total utility of water is much higher than the total utility of diamonds. The difference is the quantity purchased and availability of supply.
Is the marginal benefit of a glass of water?
The correct answer is small . The marginal benefit obtained from consuming an additional unit of a glass of water is small.
What is the diamond-water paradox quizlet?
Diamond-Water Paradox. The observation that things with the greatest value in use sometimes have little value in exchange and things with little value in use sometimes have the greatest value in exchange. Utility. A measure of the satisfaction, happiness, or benefit that results form the consumption of a good.
