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DIAMOND-WATER PARADOX: The perplexing observation that water, which is more useful than diamonds, has a lower price. If price is related to utility, how can this occur? This paradox was first proposed by classical economists in the 19th century and was subsequently used as a stepping stone for developing the notion of marginal utility and the role it plays in the demand price of a good. The paradox is magically cleared up with an understanding of marginal utility and total utility. People are willing to pay a higher price for goods with greater marginal utility. As such, water which is plentiful has enormous total utility, but a low price because of a low marginal utility. Diamonds, however, have less total utility because they are less plentiful, but a high price because of a high marginal utility.
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RESOURCES Labor, capital, land, and entrepreneurship used by society to produce consumer satisfying goods and services. Resources are often given the more descriptive term factors of production.
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More money is spent on gardening than on any other hobby.
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"It is not the mountain we conquer, but ourselves. " -- Sir Edmund Hillary, Explorer
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ADV FRT
Advance Freight
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