The Diamond-Water Paradox

The Diamond-Water Paradox asks why diamonds, which are less essential, cost more than water, which is vital for life. The key lies in scarcity and utility. Water is abundant and essential, so its price is low, but its overall usefulness is high. Diamonds are scarce and not essential, yet they are highly valued because of their rarity and desirability. The paradox reveals that value is determined not just by usefulness but also by how rare an item is and how much people desire it. This combination of scarcity and desire influences market prices.