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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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CONSUMER DEMAND THEORY The branch of economics devoted to the study of consumer behavior, especially as it applies to decisions related to purchasing goods and services through markets. Consumer demand theory is largely centered on the study and analysis of the utility generated from the satisfaction of wants and needs. The key principle of consumer demand theory is the law of diminishing marginal utility, which offers an explanation for the law of demand and the negative slope of the demand curve.
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GRAY SKITTERY
[What's This?]
Today, you are likely to spend a great deal of time wandering around the shopping mall hoping to buy either 500 feet of coaxial cable or a coffee cup commemorating the 1960 Presidential election. Be on the lookout for cardboard boxes.
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This isn't me! What am I?
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A thousand years before metal coins were developed, clay tablet "checks" were used as money by the Babylonians.
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"Do not wait; the time will never be just right " -- Napoleon Hill, author
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MGE
Minneapolis Grain Exchange
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