Question

In The Wealth of Nations, Adam Smith discussed what has come to be known as the "diamond and water paradox" "Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it:It is possible for the price of water to be much lower than the price of diamonds if which of the following is true?a. the supply of diamonds and water are the sameb. the supply of diamonds is greater than the supply waterc. the supply of water is a vertical lined. the supply of diamonds is a horizontal linee. the supply of water is greater than the supply of diamonds

Answer 1

Answer:

d. the supply of water is grater than the supply of diamonds

Explanation:

Adam Smith in this passage is illustrating the fact that the price of goods is not linked to how useful they are, but to their scarcity. Water (at least in 1776) was very abundant, and diamonds were very rare. The relative scarcity of these goods is what determines ultimately their market prices