Diamond-water paradox is an approach which can be quite confusing to most students. Explanation of diamond water paradox homework answers is what made the concept clear to many students all over the world. This topic is something which revolves around a lot of things and many struggles to understand this clearly. Here you will know about diamond water paradox along with certain other interesting things like how it is solved, labour theory, etc.
But to understand all these a student should be clear with the diamond water paradox theory first. We will start with the meaning or definition of it first then move onto the rest of the topics one by one.
What is diamond water paradox?
The diamond water paradox which is also known as the paradox of value is considered to be the plausible contradiction that, though water is more useful in the overall usage, in survival terms than the diamonds, still diamonds in the market have a much higher price than water. Explanation of diamond water paradox homework answers explains this with certain examples to make it clear.
Understanding labor theory of value
Smith like all other economists followed this approach. This theory defined that price of goods reflects the amount of resources and labor which was required for bringing it to the market. It was believed by Smith that diamonds were costlier than water as it was more difficult to bring diamonds to the market.
Smith’s belief seems logical. This can be understood by a providing a small example, to build a wooden chair a tree needs to be cut down for wood by Lumberjacks using a saw. The pieces of the chair are created by the carpenter building the chair. A cost is involved for the tools used and labors. To make this effort profitable, the chair needs to be sold for an amount which is more than the cost of production. In short, price is driven by costs.
This theory has loopholes due to many problems. The most important problem is that no explanation can be given to the items’ prices which have no labor or consists of very little labor. For example, during a hike, a man finds a clear cut naturally developed diamond which is perfect in shape. Now this diamond will be sold in the market at the same price like a diamond which is identical in nature but is got hold of by laboriously mined, cleaned and cut by human labor. Explanation of diamond water paradox homework answers covers all these grounds extensively for a better understanding of the topic.
Economists discovered that price is not driven by the cost of production; it is basically the opposite of that as it was found prices drive production cost. Let me supply you with an example which will help you understand it better. This can be easily explained with an expensive bottle of French wine. The reason for the bottle of wine to be costly because people enjoy drinking a good bottle of wine and not expensive because it is made in a valuable land or because highly paid workers picked it or chilled in an expensive machine.
The wine is subjectively valued highly which indirectly makes the land valuable and also makes it appropriate to use machines to chill it. Cost is driven by subjective prices. To know more one should go through explanation of diamond water paradox homework answers.
Solving it by Marginal Utility Concept
Theory of marginal utility is basically based on subjective value theory. It states that an amount at which goods or objects are traded in market is settled by neither the amount of labor used in the production process, as stated in labor theory of value nor as for how useful the product is on whole. Rather, the price is decided by the product’s marginal utility. Marginal utility is taken from products’ most important usage to a particular person.
When it comes to the diamond-water paradox, explanations from marginalists state that not the usefulness of water or diamonds decides the price. What decides the price is the usefulness of the unit of diamonds or water. It is absolutely true that water’s total utility to people is huge as it is a necessary product for a human being to survive. But water supply around the world is large enough to provide for all and thus water has a low marginal utility. In short, additional water unit which becomes available is applied to use which are not urgent as the water for urgent uses are satisfied.
So it is easily understood that any water unit becomes less worthy to people because the water supply increases. Now if we think carefully, supply of diamonds are not high but generally is low. Their supply is so low that the usefulness of an additional diamond is much greater than one glass of additional water whose supply is abundant. Thus, worth of a diamond is higher for people and people who want diamonds generally pay a high price for it than a glass full of water and diamond sellers also sell it at a higher price than just a glass full of water. To get more information on this and gather more resources look for an explanation of diamond water paradox homework answers. This will explain what you need to know.
If you are one of those students, who have some problem understanding this paradox or any part of it just know you are not the only one who find this difficult. My friend was studying this and faced a lot of difficulties. So once he took help of explanation of diamond water paradox homework answers things become clearer to him over time. In it is explained thoroughly in simple words for understanding it clearly.