Water is essential to life while diamonds, while beautiful, are not essential to life. In the marketplace, diamonds are very expensive while water is relatively cheap. We can resolve this paradox by focusing on

Question

Quizplus · Accepted Answer

The paradox can be resolved by focusing on the marginal utility of water and diamonds, rather than their total or average utility. Marginal utility refers to the additional utility or satisfaction that an extra unit of a good or service provides. Water, being essential to life, has a high marginal utility, but a low price because it is abundant. On the other hand, diamonds have a low marginal utility (since they are not essential to life), but a high price because they are scarce and desirable for their beauty. Therefore, by focusing on marginal utility, we can understand why water is relatively cheap and diamonds are expensive, despite the fact that water is more essential to life.

Water Is Essential to Life While Diamonds, While Beautiful, Are