Table of Contents
Which is more valuable water or diamond?
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.
Why are a bottle of water and a diamond priced differently?
Also known as the diamond-water paradox. But water typically has a low market price, while diamond jewellery has a high market price. One reason is that, in most countries, water is abundant relative to demand whereas diamonds are scarce relative to demand.
Why are diamonds more expensive than water when you can live without diamonds but Cannot live without water?
The greater the supply we have of something and the more we use it, the less we value it. “Economists tell us that the law of diminishing marginal utility dictates that consumers place a greater value on diamonds than on life-giving water.
What is the solution to the diamond-water paradox?
The paradox is, “how can something for which there is so little demand be so expensive?” The solution to this riddle is that the value of something is based not only on the demand for it, but also on its supply. Scarcity, in other words, is a function of both supply and demand.
Why diamond is expensive?
The rarity, difficulties in mining, durability, cut, clarity, color, and carat of diamonds make them expensive and in demand. Only 30\% of the mined diamond stones match the standard gem quality that is required. It is this rarity of stone that makes them the world’s most expensive diamond.
Why should diamonds be priced so high and water be priced so low?
In terms of its market supply ,water is scarce but not as scarce as diamond . Therefore,market price of water is much lower than of the Diamond .
Why is a gallon of water less expensive than an ounce of diamonds?
Since water is much more plentiful than diamonds, the supply curve for water intersects the marginal utility curve at MUw, which is close to zero. Because of the relative marginal utilities of water and diamonds, you are willing to pay much more for one more carat of a diamond than for one more gallon of water.
Are diamonds scarce economics?
The truth is though, that diamonds are not that scarce at all. Our story starts in the 1800s, when diamonds were discovered all over South Africa, flooding the market with this precious gem. When any product floods the market, this increased supply usually leads to the same outcome: less demand and lower prices.
Why is water inexpensive?
Water is relatively cheap in most of California because the water itself is basically free. Customers are really paying only for the cost of pumping and transporting the water, and the administration costs of water agencies. Despite Californians using less water, the MWD’s revenue is up this year.