How does marginal utility explain the diamond water paradox?

In explaining the diamond-water paradox, marginalists explain that it is not the total usefulness of diamonds or water that determines price, but the usefulness of each unit of water or diamonds. It is true that the total utility of water to people is tremendous, because they need it to survive.

How does the law of diminishing marginal utility explain the diamond-water paradox?

The Diamond–Water Paradox and the Law of Diminishing Marginal Utility. … As a person buys or consumes more diamonds or water, each additional unit of diamonds or water results in a lower marginal utility. At low levels of consumption, water has a higher marginal utility than diamonds and thus is more valuable.

What is marginal utility of diamonds?

Total Utility. Subjective value can show diamonds are more expensive than water because people subjectively value them more highly. … As demand increases as well, consumers must choose between one additional diamond versus one additional unit of water. This principle is known as marginal utility.

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Why is marginal utility of diamond higher than marginal utility of water?

They are of such low supply that the usefulness of one additional diamond is greater than the usefulness of one additional glass of water, which is in abundant supply. Thus, diamonds are worth more to people. … At low levels of consumption, water has a much higher marginal utility than diamonds and thus is more valuable.

Do diamonds have a high marginal utility?

Diamonds have very little total utility because they are not nearly as plentiful as water. … However, because they are less plentiful, the marginal utility of diamonds is relatively high. An extra ounce of diamonds provides a great deal of extra satisfaction.

What is the answer to 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.

What is the diamond-water paradox quizlet?

State and solve the diamond-water paradox. The paradox is that water, which is essential to life, is cheap, and diamonds, which are not essential to life, are expensive. The solution to the paradox depends on knowing the difference between total and marginal utility and the law of diminishing marginal utility.

What is the water diamond paradox in our modern economics give example of this paradox in our economic system?

The diamond-water paradox points out that practical things that we use every day often have little or no value in exchange. Things like cups, utensils, socks, and water are a few examples. On the other hand, things that often have the greatest value in the market have little or no practical use.

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What is the paradox of value and how is the paradox resolved?

The paradox of value is solved by looking at the difference between marginal and total utility.

What is an example of a paradox of value?

The paradox of value examines why goods that are not essential to life can command a much higher price than goods that are essential to life. For example, a classic example is the price of water and diamonds. Diamonds are mere accoutrements and jewellery, yet they can sell for thousands of pounds.

What is diamond water?

Diamond Water is a luxury high-pH Alkaline Water. This revitalizing water will hydrate you and will inspire your mind, body and soul. Order yours now, enjoy the taste, and relish in the way it makes you feel.

Why are diamonds more expensive than water when you can live without diamonds but Cannot live without water?

The greater the supply we have of something and the more we use it, the less we value it. … “Economists tell us that the law of diminishing marginal utility dictates that consumers place a greater value on diamonds than on life-giving water.

What is the paradox of value quizlet?

Paradox of value refers to the: high value of a nonessential item and the low value of an essential item. A nation’s wealth is determined by its: accumulation of all tangible products.