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- Water is necessary for life,
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Card 22 / 25: Water is necessary for life, but restaurants give it away for free. Diamonds are mere décor, serving only vanity, but they cannot be had cheaply. Explain this so-called "water-diamond paradox."
Answer:
People evaluate goods on the margin. No one chooses between all the water in the world and all the diamonds. Diamonds are much scarcer than water, because their total supply can't satisfy all the desires for it, but water is relatively much more plentiful. Sample Partial Credit Answer There is more water than diamonds
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Dr.Robert MurphyAssociated Scholar
Mises Institute
USA
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Attribution:
Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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