Since water is much more plentiful than diamonds, the supply curve for water intersects the marginal utility curve at MUw, which is close to zero. … Because of the relative marginal utilities of water and diamonds, you are willing to pay much more for one more carat of a diamond than for one more gallon of water.
Why does the price of water be lower than diamond?
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 are diamonds more expensive than water?
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.
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.
Why should diamonds be priced so high and water be priced so low even when water is essential to sustain life while diamonds are not?
Water has high value in use of course. But its market value is low as compared with diamonds because is available in plenty . In terms of its market supply ,water is scarce but not as scarce as diamond . Therefore,market price of water is much lower than of the Diamond .
Why is water inexpensive?
Water is relatively cheap in most of California because the water itself is basically free. Customers are really paying only for the cost of pumping and transporting the water, and the administration costs of water agencies. … Despite Californians using less water, the MWD’s revenue is up this year.
Why diamond is expensive?
The rarity, difficulties in mining, durability, cut, clarity, color, and carat of diamonds make them expensive and in demand. … Only 30% of the mined diamond stones match the standard gem quality that is required. It is this rarity of stone that makes them the world’s most expensive diamond.
Why is the price of diamonds so much greater than the price of water does marginal analysis help provide the answer?
The price of water is relatively low because the marginal utility is relatively low. The price of diamonds is relatively high because the marginal utility is relatively high. In general, people are willing to pay a relatively higher demand price for a good that generates relatively more satisfaction.
Who makes diamond water?
Asa Soltan Rahmati is the creator of “Diamond Water”. Asa’s passion for Diamond Water started in her teenage years through a special ritual she created in order to connect to a pure self – the perfect synergy of ancient ritual and modern alchemy.
Why are diamonds more expensive than gold?
Since the value of gold is predictable and stable, gold has more value than diamonds. Natural diamonds are created when carbon is subjected to extreme pressure over millions of years. … Only a highly prized diamond, like a very large stone or an unusual color, will hold its value or become more valuable over time.
Who created the diamond-water paradox?
This question is the diamond-water paradox, also known as paradox of value, and it was first presented by the economist Adam Smith in the 1700s. In his works, Smith points out that practical things that we use every day often have little or no value in exchange.
What is the economic value of diamonds?
The impact diamond revenues have on world economies includes: The diamond trade contributes approximately $7.6 billion per year to Africa. The two countries Russia and Botswana together produce 43% of the total volume, and 53% of the total value, of rough diamonds in the world.
Which of the following identify why the price of water per gallon is lower than the price of a diamond per carat?
Water is in great supply relative to demand and thus has a very low price per gallon. Diamonds are in small supply relative to their demand, thus their price is very high per carat. Reason: Relative to diamonds, water is in high supply which is why its price is low per gallon, relative to the price per carat diamond.
What is diamond water paradox in economics?
Also known as the diamond-water paradox, the paradox of value describes the vast difference seen in the prices of certain essential goods and non-essential goods. Many goods and services that are essential to human life have a much lower price in a market economy than other goods and services that are not so essential.
How is the diamond water paradox resolved?
Smith “resolved” the paradox in through the Labour Theory of Value, essentially saying the real price of everything – what “everything really costs to the man who wants to acquire it, is the trouble of acquiring it.” He denied that there’s a necessary relationship between price & utility and connected it more towards …
What is diamond water?
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