Why does the marginal benefit of a diamond nearly always exceed the marginal benefit of a bottle of water?

What does it mean when marginal benefit exceeds marginal cost?

When marginal benefit exceeds marginal cost (MB>MC), the excess of marginal benefit over marginal cost represents a net benefit for society. … When marginal cost exceeds marginal benefit (MC>MB), then it costs us more to produce the last unit than the benefits we derive from that last unit.

Why is the price of diamonds so much greater than the price of water does marginal analysis help provide the answer why or why not explain with pertinent examples?

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.

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Why do you want your marginal benefit to be greater than your marginal cost?

The efficient quantity of a good is the quantity that makes marginal benefit from the good equal to marginal cost of producing it. If marginal benefit exceeds marginal cost, resources use will be more efficiently if the quantity is increased.

Why are diamonds more expensive than water economics?

Economically speaking, diamonds are more expensive than water because of supply and demand. In this case, it’s more because of supply than because of demand. … Since the supply of them is so low, their prices are high. But if water became scarce, its price would be really high too.

What happens when marginal benefit is less than marginal cost?

If the marginal benefit is less than the marginal cost, the quantity should be reduced. Net benefit is maximized at the point at which marginal benefit equals marginal cost. … The rule basically says this: If the additional benefit of one more unit exceeds the extra cost, do it; if not, do not.

What is the relation between marginal benefit and marginal cost?

Marginal benefits are the maximum amount a consumer will pay for an additional good or service. The marginal benefit generally decreases as consumption increases. The marginal cost of production is the change in cost that comes from making more of something.

Why should diamond be priced so high?

Diamonds are high-priced because the demand is high relative to the limited quantity available. Water is inexpensive because it is typically fairly abundant, but if one is dying of thirst, then it would have a much higher value-in-exchange–conceivably even greater than diamonds.

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Why is the price of diamonds usually so much higher than the price of water even though people Cannot survive long without water?

Why is the price of diamonds usually so much higher than the price of water even though people cannot survive long without water? Marginal utility, not total utility, determines how much a person is willing to pay for a good. … as more of any good or service is consumed, its extra benefit declines.

What is the meaning marginal benefit?

A marginal benefit is a maximum amount a consumer is willing to pay for an additional good or service. It is also the additional satisfaction or utility that a consumer receives when the additional good or service is purchased.

Why does marginal benefit decrease?

As a consumer’s consumption level increases, the marginal benefit tends to decrease (which is called diminishing marginal utility), because the incremental amount of satisfaction associated with the additional consumption declines.

Why is demand marginal benefit?

1. The demand curve represents marginal benefit. The vertical distance at each quantity shows the mount consumers are willing to pay for that unit. … At the point where quantity demanded and quantity supplied are equal, marginal social cost exceeds marginal social benefit and too much of the good is produced.

How does the marginal benefit from a good change as the quantity produced of that good increases?

The marginal benefit is the benefit that is obtained by getting one more unit of a good or a service. The marginal benefit of good changes as the quantity produced of it increases, because additional units lead to decreasing marginal benefit from it.

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