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.
Which theory explains the diamond-water paradox?
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.
What is Smith’s paradox?
The paradox, which is usually traced to a paragraph in Adam Smith’s Wealth of Nations, has been summarized by one textbook as follows: Why is it that “water, which has so much value in use, has no value in exchange, while diamonds, which have practically no value in use, are exchanged at high prices” (Ekelund and …
How is the diamond-water paradox resolved?
Smith “resolved” the paradox in through the Labour Theory of Value, essentially saying the real price of everything – what “everything really costs to the man who wants to acquire it, is the trouble of acquiring it.” He denied that there’s a necessary relationship between price & utility and connected it more towards …
Why is the diamond-water paradox important?
Clearly, water is more valuable as an essential resource as opposed to the luxury of owning a diamond. As demand increases as well, consumers must choose between one additional diamond versus one additional unit of water. This principle is known as marginal utility.
What is the diamond-water paradox quizlet?
State and solve the diamond-water paradox. The paradox is that water, which is essential to life, is cheap, and diamonds, which are not essential to life, are expensive. The solution to the paradox depends on knowing the difference between total and marginal utility and the law of diminishing marginal utility.
What is the paradox of value and how is the paradox resolved?
The paradox of value is solved by looking at the difference between marginal and total utility.
Is a paradox true?
A paradox is a logically self-contradictory statement or a statement that runs contrary to one’s expectation. It is a statement that, despite apparently valid reasoning from true premises, leads to a seemingly self-contradictory or a logically unacceptable conclusion.
What is exchange value Marx?
EXCHANGE-VALUE: The usefulness of a commodity vs. the exchange equivalent by which the commodity is compared to other objects on the market. Marx distinguishes between the use-value and the exchange value of the commodity. … The more labor it takes to produce a product, the greater its value.
Is Diamond Water still around?
Diamond water is pretty much diamonds soaked in water that she swears by. Years later you can still spot Diamond water being sold at your local Ross store.
Why diamonds are 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.
Why is diamond 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.
What is the water diamond paradox and how does it relate to the concepts of scarcity and value?
What is the water diamond paradox and how does it relate to the concepts of scarcity and value? In economics, the diamond-water paradox recognizes that in the marketplace, sometimes the more useful and necessary items, such as water, are less expensive than nonessentials, such as diamonds.
What is another example of the paradox of value?
The paradox of value examines why goods that are not essential to life can command a much higher price than goods that are essential to life. For example, a classic example is the price of water and diamonds. Diamonds are mere accoutrements and jewellery, yet they can sell for thousands of pounds.
How does the law of diminishing marginal utility explain the diamond-water paradox?
The Diamond–Water Paradox and the Law of Diminishing Marginal Utility. … As a person buys or consumes more diamonds or water, each additional unit of diamonds or water results in a lower marginal utility. At low levels of consumption, water has a higher marginal utility than diamonds and thus is more valuable.
What is diamond water?
Diamond Water is a luxury high-pH Alkaline Water. This revitalizing water will hydrate you and will inspire your mind, body and soul. Order yours now, enjoy the taste, and relish in the way it makes you feel.