"Because the Price of a Diamond Is Much Greater Than

question 183

Essay

"Because the price of a diamond is much greater than the price of a gallon of water, the consumer surplus from diamonds is greater than the consumer surplus from water." Is the previous analysis correct? Explain your answer.

---

Definitions:

Unintended Inventory Investment

Occurs when a business accumulates inventory beyond its planned level, often due to lower than expected sales.

Rate of Interest

The percentage of a sum of money charged for its use, typically expressed annually, influencing borrowing, lending, and investment activities.

Saving and Investment

Refers to the act of setting aside a portion of current income for future use and allocating funds into ventures or assets expected to yield future returns.

Total Output

The total quantity of goods and services produced within an economy at a given overall price level and within a specified period.