The High Price of Diamonds Relative to the Price of Water

question 70

Multiple Choice

The high price of diamonds relative to the price of water is due to the fact that

• A) total benefits from water are relatively low.
• B) total benefits from diamonds are relatively high.
• C) marginal benefits from water are relatively low.
• D) marginal benefits from diamonds are relatively low.
• E) none of the above is true.

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Definitions:

Liquidity

The measure of how quickly and easily an asset can be converted into cash without significantly affecting its value.

Leverage

Describes the use of borrowed capital or debt to increase the potential return of an investment or project.

Asset Management

The process of developing, operating, maintaining, and selling assets in a cost-effective manner, commonly used in finance to refer to managing investments.

Profitability

The state or condition of yielding financial profit or gain, often measured as a ratio of net profits to total assets.