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    Question

    The Diamond-water Paradox shows us that

    ?
    A Utility is related to demand Correct Answer Incorrect Answer
    B Utility is related to supply Correct Answer Incorrect Answer
    C Utility could be the cause of value Correct Answer Incorrect Answer
    D Utility could not be the cause of value Correct Answer Incorrect Answer

    Solution

    Adam Smith points out that practical things that we use every day often have little or no value in exchange. Things like cups, utensils, socks, and water are a few examples. On the other hand, things that often have the greatest value in the market have little or no practical use. This is because of marginal utility and scarcity . There is plenty of water in most parts of the world (not scarce), which means that, as consumers, we usually have a low marginal utility for water. In a typical situation, we aren't willing to pay a lot of money for one more drink of water. Diamonds, however, are scarce. Because they are harder to find and attain, our marginal utility (additional satisfaction), for adding a diamond to our collection is much higher than someone offering us one more drink of water.

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