Statement I: The water-diamond paradox is partially explained by the law of diminishing marginal utility.
Statement II: The marginal utility of the water we consume is quite low.
A)Statement I is true and statement II is false.
B)Statement II is true and statement I is false.
C)Both statements are true.
D)Both statements are false.

Question

Quizplus · Accepted Answer

The water-diamond paradox, which questions why diamonds are more expensive than water despite water being essential for life, is explained by the law of diminishing marginal utility. This law states that as we consume more of a good, the additional satisfaction (marginal utility) we get from consuming an additional unit decreases. Since we consume water in large quantities, the marginal utility of water is low, making its price low despite its necessity. Conversely, diamonds are rare and consumed in much smaller quantities, making their marginal utility (and price) high.

Statement I: the Water-Diamond Paradox Is Partially Explained by the Law