Sunday, February 24, 2008
Why diamonds are so expensive
This week we've been discussing supply, demand, and equilibrium. I was going to Janesville with my mom to pick out flooring for my room and a diamond commercial came on. So we began discussing how big a 1/10 of a karate diamond was (they had mentioned it in the commercial) and y they were so expensive. We discussed how since diamond are regulated (as far as how many are released at one time). So this regulation of supply (and the fact that making actually diamonds is a long process) allows jewelers to set diamond prices so high. If diamonds were easier to supply (man made diamonds) the equilibrium price would drop. So, now that you are thinking about diamonds as more than shiny little rocks I think I'm done explaining why diamonds are so expensive.
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2 comments:
I'm impressed you were talking econ with someone. :) Hey, you could tie that into Women's Studies, too, somehow. Ha! Double your fun...
Diamonds are also controlled by a cartel. That always changes things. When we get to Oligopolies, I'll try to remember to use it in our examples. :)
This is interesting. I have heard that rubies are actually more valuable than diamonds (or any other precious stone), I think because they're rarer...
However, diamonds are the stones that everyone makes a big deal about and that tend to cost the most.
I guess this can be explained by this regulation of diamond supply. By making diamonds much more difficult to obtain, people regard them as worth more than they actually are worth. Rubies, on the other hand, being less-regulated (if at all), would therefore appear cheaper even though they're more valuable.
I wonder how many other times government involvement/regulation interferes with prices of goods, charging consumers more than what a particular good is worth and making a more valuable good seem less valuable in comparison...
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