What is the solution to the diamond-water paradox?
The paradox is, “how can something for which there is so little demand be so expensive?” The solution to this riddle is that the value of something is based not only on the demand for it, but also on its supply. Scarcity, in other words, is a function of both supply and demand.
Which of the following statements best explains the diamond-water paradox?
Which of the following statements best explains the diamond-water paradox? Prices depend on marginal utility, not total utility, and the marginal utility of water is low because much is consumed. Which of the following is a correct statement about the short run in economics?
Why does the paradox of value between diamonds and water arise quizlet?
Why does the paradox of value between diamonds and water arise? … water is cheap but provides a large consumer surplus, while diamonds are expensive with a small consumer surplus.
Which principle is quite useful in explaining the water diamond paradox?
Clearly, water is more valuable as an essential resource as opposed to the luxury of owning a diamond. 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.
How is the paradox of value solved?
Modern economists have tried to solve the paradox of value by attempting to coalesce the ideas mentioned by Adam Smith in another way under the concept of utility, how well something satisfies a person’s wants or needs, which in turn contradicts Karl Marx’s labour theory of value.
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 importance of the water diamond theory?
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.
What is the diamond-water paradox and how is it explained?
The paradox of value (also known as the diamond–water paradox) is the contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.
Why does the diamond-water paradox support the theory that prices reflect marginal utility not total utility?
Why does the diamond-water paradox support the theory that prices reflect marginal utility, not total utility? Total utility of water is high because water is useful. … The marginal utility of diamonds is high because diamonds are so scarce that people consume them at high marginal utility.
What is the paradox of value and what solution did the economist Adam Smith propose to solve this?
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.