Does the fact that diamonds, which we do not need to survive, are more expensive than water, which is a necessity, constitute a violation of utility maximization?
What will be an ideal response?
No, the fact that diamonds are less useful but more expensive than water reflects the paradox of value. The resolution to this paradox comes from the observation that utility maximization involves marginal utility (specifically, marginal utility per dollar) not total utility. Water has a low marginal utility, because people have a lot of it, but a very high total utility, because it is essential to life. Diamonds have a high marginal utility, because people have fewer diamonds, but a relatively low total utility because diamonds are not necessary to life. Hence the low marginal utility of water is reflected in the low price of water, while the high marginal utility of diamonds is reflected in the high price of a diamond.
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Which of the following macroeconomic variables is procyclical and leads the business cycle?
A) Business fixed investment B) Residential investment C) Nominal interest rates D) Unemployment
Judy Carl has been eyeing for weeks a Prada handbag (made in Milan, Italy) in the store window at Neiman-Marcus. She is willing to pay $250 for it (a birthday gift for herself, she rationalizes) if the price ever came down to that. Well, she is in luck! It goes on sale for $200, down from $325 . She rushes in to make the purchase. She not only gets the handbag, but also a consumer surplus of
a. $125 b. $50 c. $200 d. $75 e. $375
When compared to a closed shop, a union shop provides the hiring firm with
a. more skilled labor b. more flexibility in exercising its right to choose its own labor c. less flexibility in exercising its right to choose its own labor d. less skilled labor e. labor at a higher wage rate
________ involves the direct exchange of one good for another without the use of money
a. Comparative advantage b. Barter c. Economic growth d. International trade