We've just been learning about marginal utility and one of the questions for the next class is:
Why is water, a necessity, cheap; while dimaneds, which are surely luxuries, are expensive?
i have a vague idea of the answer: water is plentiful so is cheap so it's consumed to the point where marginal utility is low; diamnds are scarce so are expensive so are only consumed where marginal utility is high.
please help me!!
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Marginal Utility watch
- Thread Starter
- 15-11-2008 11:29
- 15-11-2008 12:18
That's correct. Also the area under the demand curve for water is larger
- 15-11-2008 12:22
It's the Diamond Water paradox....if you type that into google I'm sure you'll come up with something...
Basically, you need to think about both the marginal and total utilities for both of them...
- 16-11-2008 00:28
Its mainly based around marginal utility, what is the benefit to the consumer for consuming the additional unit of water? Very little, while the benefit for them gaining the additional unit of a diamond is far greater as they purchase far fewer diamonds.
In other words: Assume your basic need for water is satisfied. You are now offered more water and plenty of diamonds. What will you choose?