Question : Diamonds are priced higher than water because :
Option 1: They are sold by selected firms with monopolistic powers.
Option 2: Their marginal utility to buyers is higher than that of water .
Option 3: Their total utility to buyers is higher than that of water.
Option 4: Consumers do not by them at lower prices .
Correct Answer: Their marginal utility to buyers is higher than that of water .
Solution : The correct option is their marginal utility to buyers is higher than that of water .
The additional enjoyment or value that a buyer receives by purchasing one more unit of a good or service is referred to as marginal utility. In this instance, it suggests that compared to water, diamonds offer a higher level of added satisfaction. This explains why, in a normal market environment, diamonds are more expensive than water despite the fact that both are luxury goods and water is necessary for life.
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