Water is cheap and brings a diamonds are expensive and bring a a. small deadweight loss; large deadweight loss b. small consumer surplus; large consumer surplus c. large consumer surplus; small consumer surplus d. large deadweight loss; small deadweight loss

The answer is C. Large consumer surplus; small consumer surplus.

water is cheap, but it carries a large consumer surplus, while diamond is expensive but carries a small consumer surplus.

Paradox is a situation that arises from many premises (what is considered true as a basis for later conclusions/rationale/reason/assumptions/sentences/propositions that are used as the basis for concluding logic), whose truth is recognized that starts from a statement and will arrive to a group of statements that lead to a contradiction or a counterintuitive situation.

The Water and Diamond Paradox

Water that is more useful than diamonds, has a lower price than diamonds. This is a paradox that came from economists in 1800, as a way of understanding the utility in the price of demand for a product by distinguishing between marginal utility and total utility.

This paradox confuses ordinary people, even though water is more important for daily activities, but the price of water is relatively lower compared to the price of diamonds whose function is not so important for human daily activities.

The diamond water paradox results by comparing marginal utility with total utility are as follows:

Water provides total utility humans, but because of the large amount of water marginal utility water is low. Instead, the total utility of a diamond is very limited, this is supported because of the scarce number of diamonds. Compared to water, all humans don't get any satisfaction from diamonds.

Diamonds have very little total utility because of their scarce numbers. Because human daily activities do not depend on the presence of diamonds. However, due to the limited number of diamonds the marginal utility of diamonds is very high.

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Class: College

Subject: Bussines

Keyword: The Water and Diamond Paradox

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