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ADVERTISING: Information provided about a product by a company to promote or maintain sales, revenue, and or profit. Advertising is often an explicit method of signalling that sellers use to provide information to buyers. The primary objective of advertising from the sellers perspective is to increase (or at least maintain) demand for a product. To accomplish this objective advertising provides buyers with two important types of information -- prices and product quality.
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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. See also | price | demand price | utility | marginal utility | total utility | consumer surplus | law of diminishing marginal utility | marginal utility-price ratio | marginal utility and demand |
Recommended Citation:DIAMOND-WATER PARADOX, AmosWEB GLOSS*arama, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: July 5, 2025].
AmosWEB Encyclonomic WEB*pedia:Additional information on this term can be found at: WEB*pedia: diamond-water paradox
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RECOGNITION LAG The time lag that it takes to identify and document the existence of an economic problem that might require government action. The recognition lag arises because it takes time to collect and analyze economic data; to verify that an actual problem exists. This "inside lag" is one of four policy lags associated with monetary and fiscal policy. The other two "inside lags" are decision lag and implementation lag, and one "outside lag" is implementation lag. All four policy lags can reduce the effectiveness of business-cycle stabilization policies and can even destabilize the economy.
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The portion of aggregate output U.S. citizens pay in taxes (30%) is less than the other six leading industrialized nations -- Britain, Canada, France, Germany, Italy, or Japan.
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"Plans are only good intentions unless they immediately degenerate into hard work." -- Peter Drucker, management consultant
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AEA
American Economic Association
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