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DIAMOND-WATER PARADOX: The perplexing observation that water, which is more useful than diamonds, has a lower price. If price is related to utility, how can this occur? This paradox was first proposed by classical economists in the 19th century and was subsequently used as a stepping stone for developing the notion of marginal utility and the role it plays in the demand price of a good. The paradox is magically cleared up with an understanding of marginal utility and total utility. People are willing to pay a higher price for goods with greater marginal utility. As such, water which is plentiful has enormous total utility, but a low price because of a low marginal utility. Diamonds, however, have less total utility because they are less plentiful, but a high price because of a high marginal utility.
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MARKET FAILURES Imperfections in the exchange process between buyers and sellers that prevent markets from efficiently allocating scarce resources. Market failures come in four varieties -- public goods, market control, externalities, and imperfect information. Market efficiency is achieved if the value of goods produced is equal to the value of foregone production. Markets fail when this efficiency condition is not achieved. Such failures can only be corrected by government intervention.
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PURPLE SMARPHIN
[What's This?]
Today, you are likely to spend a great deal of time surfing the Internet wanting to buy either a wall poster commemorating Thor Heyerdahl's Pacific crossing aboard the Kon-Tiki or decorative garden figurines. Be on the lookout for slightly overweight pizza delivery guys.
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This isn't me! What am I?
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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"Laughter is the shortest distance between two people. " -- Victor Borge, musician, humorist
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ACBS
Accrediting Commission for Business Schools
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