Have you ever thought why you pay a higher price for what that only looks shiny and sparkles than what that sustains your life?
So here’s Diamond- Water Paradox. What is it?
Across the globe, we will see that between water and diamond, diamond is the one that commands a higher price in the economy. Even after we know that our life is sustained by water not by diamonds, people are willing to pay even a higher price for the diamonds. This is Diamond-Water Paradox.
Why is it so?
It all depends upon the marginal utility. Marginal utility is the additional utility obtained from consuming an extra unit of a good. So, no doubt, people are only willing to pay for that good from which they are able to attain a higher marginal utility.
Now, as we all know that a plenty of water is available in most parts of the world, it is not scarce. On the other hand, diamond is very scarce, it is harder to find and attain.
That’s why, the utility from attaining an extra piece of diamond is much higher than the utility attainable from an extra glass of water. So people pay for diamonds. However, if a person is really thirsty, this paradox does not apply there.
17 Comments. Leave new
Good article. I knew the concept but didn’t know it was termed as diamond-water paradox.
Diamond water paradox is an unique concept.Good effort!
Different topic. Nice! 😀
Nicely written. All I want to add here is that as our resources are getting depleted, the diamond water paradox might fade away, as has been pointed out in the last line.
A very unique topic, and nicely explained too.
Amazing choice of topic and briefly written…very informative
Unique
Amazing article…!
Very informative and unique 🙂
Interesting as well as unique.
Good topic and nicely written. Good work!
Interesting as well as unique.
Interesting as well as unique
Good topic and well put 🙂
Unique topic 😀 very well wriiten 😀
Good work 😀
it’s true. Rare goods command more price
Nice explanation to the topic