Problems for Week 3

Problems for Week 3 - demand for water is much greater than...

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Problems for Week 3 Name ______________________________ Section __________ 3.4 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.” Graph the market for diamonds and the market for water. Show how it is possible for the price of water to be much lower than the price of diamonds, even though the
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Unformatted text preview: demand for water is much greater than the demand for diamonds. 4.9 An article in the Wall Street Journal notes that during the early 2009 the demand for Internet advertising was declining at the same time the number of Internet sites accepting advertising was increasing. After reading the article, a student argues: from this information, we know that the price of Internet ads should fall, but we dont know whether the total quantity of Internet ads will increase or decrease. Is the students analysis correct? Illustrate your answer with a supply and demand graph....
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