The Paradox of Value with Respect to Water and Diamonds

question 31

Multiple Choice

The paradox of value with respect to water and diamonds can be explained using consumer surplus because

• A) water is cheap but provides a large consumer surplus, while diamonds are expensive with a small consumer surplus.
• B) diamonds are in large supply relative to their demand, while water is scarce in supply relative to its demand.
• C) water is cheap but provides a small consumer surplus, while diamonds are expensive but provide a large consumer surplus.
• D) the total consumer surplus from diamonds is greater than the total consumer surplus from water.
• E) None of the above answers is correct.

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Definitions:

Earnings Retention

The portion of a company's profit that is kept or retained rather than distributed to shareholders as dividends.

Total Asset Turnover

A metric indicating how effectively a firm utilizes its assets to produce sales income.

External Financing

Funds that a business obtains from outside sources to cover its operational needs and finance growth, including debt and equity financing.

Internal

Pertaining to activities, operations, or factors that occur or exist within an organization or entity.