Question

4.20 Diamonds clearly satisfy less important needs than water, which is essential to life. Yet according to market prices, the essential commodity, water, is worth less than the less essential commodity, diamonds. Why would a vital com-modity such as water sell for so much less than diamonds? Does this imply that there is something wrong with a market system that values diamonds more than water? Explain using demand and supply curves for water and diamonds. In your ex-planation, distinguish between the marginal and total benefit of the two commodities.