Diamond Water Paradox

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  • Topic: Marginal utility, Economics, Supply and demand
  • Pages : 2 (517 words )
  • Download(s) : 296
  • Published : September 11, 2006
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The age-old question as to why diamonds are more expensive than water has perplexed economists for years. The fact that we need water to survive yet it costs less than diamonds, which has nothing to do with the survival of mankind, is very interesting. When talking about the Diamond-Water paradox, it is based on the premise of ‘goods,' that consumption is related to well being which economists call utility. When it comes to the purchasing of goods or services it is explained that the bulk of what a consumer will buy or consume is their sense of total utility. This is associated with the supply and demand chain of TCO #3 and how the economic system evolves in TCO #1. We must first look at the choices that consumers make that reflect demand curves. When economists look at this issue they are looking at supply and demand, they have developed models in which to explain the behaviors of people and their households. These models are geared towards figuring out ones spending, working, and saving habits. It is assumed that each choice is made after careful consideration of the benefits and costs of their decision. The premises for these models is to find out what & how to produce products, this is modeled after the Traditional Economic System. Economists are concerned with exactly how much a person will pay for "goods" and that is considered marginal utility. All of this ties to the Diamond-Water Paradox because the demand for diamonds is high as is the price, with that the demand for water is also high but the cost is significantly lower. As the consumption of water increases it is valued less than the consumption of Diamonds. There is the old adage that, ‘Diamonds are a Girls Best friend," with this being the cornerstone of the diamond market it makes this more valuable to consumers. Men tend to buy diamonds to makeup for mistakes and believe this will get them back into the good graces of their mate. The marginal value of diamonds vs. water is on a...
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