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    Question

    Diamond-water paradox establishes the fact that

    A marginal utility as well as total utility of necessary goods is high Correct Answer Incorrect Answer
    B marginal utility is low and total utility is high for necessary goods Correct Answer Incorrect Answer
    C marginal utility is high and total utility is high for precious goods Correct Answer Incorrect Answer
    D marginal utility is low and total utility is high for precious goods Correct Answer Incorrect Answer

    Solution

    The paradox of value (also known as the diamond–water paradox) is the contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market. Marginal utility, not total utility, is the critical determinant of price. The price of water is relatively low because the marginal utility is relatively low.

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