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Why should diamonds be priced so high and water be priced so low even when water is essential to sustain life while diamonds are not??
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Answers
Answered by
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There are plenty of water in earth and that is not scarce which mean the consumer will have low marginal utility. So the consumer doesn't pay a lot of money for drinking.
However diamond are harder to find and attain our marginal utility for adding diamondto our collection is much higher than someone offering us one more drink of water. If one person is dying of thirst then this paradox might not make sense and the marginal utility from another drink of water would be much higher than the additional satisfaction of owning a diamond.
However diamond are harder to find and attain our marginal utility for adding diamondto our collection is much higher than someone offering us one more drink of water. If one person is dying of thirst then this paradox might not make sense and the marginal utility from another drink of water would be much higher than the additional satisfaction of owning a diamond.
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______________________
_________,,
,
,
❗❗_______The paradox of value (also known as the diamond–water paradox) is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market._______❗❗
#, How is it solved?
By the concept of marginal utility. Let's see.
The theory of marginal utility, which is based on the subjective theory of value, says that the price at which an object trades in the market is determined neither by how much labor was exerted in its production, as in the labor theory of value nor on how useful it is on the whole. Rather, its price is determined by its marginal utility. The marginal utility of a good is derived from its most important use to a person.
In explaining the diamond-water paradox, marginalists explain that it is not the total usefulness of diamonds or water that determines price, but the usefulness of each unit of water or diamonds. It is true that the total utility of water to people is tremendous because they need it to survive. However, since water is in such large supply in the world, the marginal utility of water is low. In other words, each additional unit of water that becomes available can be applied to less urgent uses as more urgent uses for water are satisfied.
Therefore, any particular unit of water becomes worth less to people as the supply of water increases. On the other hand, diamonds are in much lower supply. They are of such low supply that the usefulness of one additional diamond is greater than the usefulness of one additional glass of water, which is in abundant supply.
_______________________
__________
Regards
Riyanshu...✌✌☺
☺☺☺☺☺☺☺☺☺☺☺☺☺☺☺☺
❗❗➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖➖❗❗⤵⤵⤵⤵⤵
______________________
_________,,
,
,
❗❗_______The paradox of value (also known as the diamond–water paradox) is the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market._______❗❗
#, How is it solved?
By the concept of marginal utility. Let's see.
The theory of marginal utility, which is based on the subjective theory of value, says that the price at which an object trades in the market is determined neither by how much labor was exerted in its production, as in the labor theory of value nor on how useful it is on the whole. Rather, its price is determined by its marginal utility. The marginal utility of a good is derived from its most important use to a person.
In explaining the diamond-water paradox, marginalists explain that it is not the total usefulness of diamonds or water that determines price, but the usefulness of each unit of water or diamonds. It is true that the total utility of water to people is tremendous because they need it to survive. However, since water is in such large supply in the world, the marginal utility of water is low. In other words, each additional unit of water that becomes available can be applied to less urgent uses as more urgent uses for water are satisfied.
Therefore, any particular unit of water becomes worth less to people as the supply of water increases. On the other hand, diamonds are in much lower supply. They are of such low supply that the usefulness of one additional diamond is greater than the usefulness of one additional glass of water, which is in abundant supply.
_______________________
__________
Regards
Riyanshu...✌✌☺
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