Diamond-water paradox

The diamond-water paradox is the observation that water has a lower price than diamonds despite being more essential to human survival. This is problematic if price is related to some kind of intrinsic value.

This paradox was first proposed by classical economists in the nineteenth century. It was subsequently used to develop the principle of marginal utility. Consumers pay higher prices for goods with greater marginal utility (or the use to which they put the last unit) rather than total utility (the use to which they put all units).

Although water has great total utility, because it is plentiful it has a low marginal utility and so a low price. As diamonds are less plentiful they command a high price due to their scarcity and so their higher marginal utility, despite the fact that they have less total utility.