Which of the following best describes the paradox of value in economics?

• A. The idea that the value of a good is always determined by its cost of production.
• B. The observation that some essential goods, like water, have a low price while non-essential goods, like diamonds, have a high price.
• C. The concept that all goods have equal value in a free market.
• D. The phenomenon where the price of a good increases as its supply increases.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the paradox of value, also known as the diamond-water paradox, which highlights a puzzling observation in economics about the prices of goods.
2. Step 2: Recognize that the paradox points out how some essential goods, such as water, often have a very low market price despite their critical importance to life.
3. Step 3: Contrast this with non-essential goods, like diamonds, which have a high market price even though they are not necessary for survival.
4. Step 4: Realize that this paradox challenges the idea that value is solely determined by usefulness or necessity, prompting economists to consider other factors like marginal utility and scarcity.
5. Step 5: Conclude that the best description of the paradox of value is the observation that essential goods can have low prices while non-essential goods can have high prices, due to differences in marginal utility and scarcity.