The diamond-water paradox is based on the assumption of increasing marginal utility.

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The diamond-water paradox illustrates the difference between total utility and marginal utility, highlighting how water, despite being essential, has a low price due to its abundant supply (high total utility but low marginal utility), whereas diamonds, being scarce, have a high price (low total utility but high marginal utility). It does not assume increasing marginal utility; rather, it typically involves diminishing marginal utility.

The Diamond-Water Paradox Is Based on the Assumption of Increasing