What is the water and diamonds paradox of value and what is its resolution?
What will be an ideal response?
The paradox is that water is critical to life—has high total utility—but sells for a low price. Diamonds, in contrast, are nonessential—have low total utility—but sell for a high price. The paradox is resolved by realizing that the price we are willing to pay is linked to the marginal utility from the next glass of water or diamond, not the total utility of all units of each previously obtained. We already have much water, so the marginal utility of the next water is low. But most people have few diamonds, so the marginal utility of the next diamond is high.
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In the above figure, as output increases, the distance between curves B and C decreases because
A) total cost decreases as output increases. B) average fixed cost decreases as output increases. C) there are diminishing returns to average total cost. D) there are increasing marginal costs as output increases.
Suppose when the price of laptops fall, college students buy more laptops. This implies that
A) there is a one-to-one relationship between laptop prices and quantities purchased by college students. B) there is a direct relationship between laptop prices and quantities purchased by college students. C) there is a negative relationship between laptop prices and quantities purchased by college students. D) there is a positive relationship between laptop prices and quantities purchased by college students.