If water is essential for life, while diamonds are not, then why is water cheaper than diamonds?
A) Because the marginal utility of water is high but the total utility is low.
B) Because the total utility generated by diamonds is larger than the total utility generated by water.
C) Because most people do not understand their total need for water.
D) Because water is abundant, the marginal utility of water is low, and price reflects marginal utility, not total utility.

Question

Quizplus · Accepted Answer

Water is abundant, and its marginal utility is lower than that of diamonds. The law of demand and supply dictates that price reflects marginal utility, and therefore, water is cheaper than diamonds.

If Water Is Essential for Life, While Diamonds Are Not