Question

Why does the marginal benefit of a diamond nearly always exceed the marginal benefit of a bottle of water?

A)People need to drink water to stay alive, so the marginal cost of water is much higher.

B)Diamonds are much more scarce than water, so the marginal benefit of diamonds are much higher

C)People can use water in more ways than diamonds, so the marginal cost of water is much higher.

D)Diamonds are one of the hardest substances on earth, so the marginal benefit of diamonds are much higher

Answer 1

Answer:

B)Diamonds are much more scarce than water, so the marginal benefit of diamonds are much higher

Explanation:

Water is a necessary good, but diamonds are luxury goods. At low levels of consumption, water will provide a much higher utility than diamond. Someone very thirsty will derive much more satisfaction from drinking water than from acquiring diamonds.

Marginal benefits arise from the consumption of extra units. After one has quenched their thirst,  consuming more water later adds minimal benefits. On the other hand, diamonds are scarce and valuable. Having one is good, but getting an extra one will bring greater benefits as it increases wealth. Therefore, the marginal consumption of o diamonds has greater benefits than water.