Why is the diamond water paradox confusing?

Subjective value can show diamonds are more expensive than water because people subjectively value them more highly. However, it still cannot explain why diamonds should be valued more highly than an essential good such as water. … This principle is known as marginal utility.

What the diamond-water paradox is and why is it a paradox?

The paradox of value (also known as the diamond–water paradox) is the contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.

What is the answer to the diamond-water paradox?

answer to the so-called “diamond-water paradox,” which economist Adam Smith pondered but was unable to solve. Smith noted that, even though life cannot exist without water and can easily exist without diamonds, diamonds are, pound for pound, vastly more valuable than water.

What is diamond water controversy?

The ‘Diamond water’ controversy is explained by marginal utility. … Because they are harder to find and attain, our marginal utility (additional satisfaction), for adding a diamond to our collection is much higher than someone offering us one more drink of water.

How the law of diminishing marginal utility can explain the diamond-water paradox?

The Diamond–Water Paradox and the Law of Diminishing Marginal Utility. … As a person buys or consumes more diamonds or water, each additional unit of diamonds or water results in a lower marginal utility. At low levels of consumption, water has a higher marginal utility than diamonds and thus is more valuable.

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Who gave water diamond paradox?

This question is the diamond-water paradox, also known as paradox of value, and it was first presented by the economist Adam Smith in the 1700s. In his works, Smith points out that practical things that we use every day often have little or no value in exchange.

Why is diamond so expensive than water?

Total Utility. Subjective value can show diamonds are more expensive than water because people subjectively value them more highly. … As demand increases as well, consumers must choose between one additional diamond versus one additional unit of water. This principle is known as marginal utility.