The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior.

Question

Quizplus · Accepted Answer

This phenomenon is explained by the concepts of marginal utility and scarcity. Diamonds are scarce and have a high marginal utility for some people, making them willing to pay more. Water, while essential for survival, is generally abundant and has a lower marginal utility, hence the lower price. This behavior is rational within the framework of economic theory.

The Fact That People Are Willing to Pay Much More