Also known as the diamond-water paradox, the paradox of value describes the vast difference seen in the prices of certain essential goods and non-essential goods. Many goods and services that are essential to human life have a much lower price in a market economy than other goods and services that are not so essential.
Who explained 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.
How do you solve diamond-water paradox?
Water is very large in supply but we do not get any additional utility and utmost satisfaction in consuming additional cup of water when compared to diamonds. But diamonds are short in supply and demanded more, because people get so much of satisfaction and benefit from a piece of diamond. This solves the paradox.
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Why does the paradox of value between diamonds and water arise?
Why does the paradox of value between diamonds and water arise? … water is cheap but provides a large consumer surplus, while diamonds are expensive with a small consumer surplus.
Which is more valuable diamonds or water?
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 diamond is expensive than water?
Because water is so much more abundant than diamonds, there is a much larger supply of it. In general, the greater the supply of something, the lower the equilibrium price. This is why diamonds cost more than water even though water is a necessity and diamonds are not.