The Diamond-Water Paradox Is an Example That Shows That

question 169

Multiple Choice

The diamond-water paradox is an example that shows that

• A) necessities like water should have a higher price.
• B) marginal utility rather than total utility determines what people are willing to pay for a good.
• C) there are exceptions to the law of diminishing marginal utility.
• D) marginal utility can initially increase and then decrease.

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Definitions:

Market Price

The existing rate at which a service or asset is offered for buying or selling in a certain market.

Consumer Surplus

The difference between the amount that consumers are willing to pay for a good or service and the actual amount they pay.

Deadweight Loss

The total loss of producer and consumer surplus from underproduction or overproduction.

Underproduction

A situation where the quantity produced of a good or service is less than the socially optimal level, often leading to market failure.