Principles of Economics Shubham Gupta IIT2013180
Diamond-Water Paradox
The Diamond-Water Paradox, also known as the Paradox of Value, is a famous contradiction that has
been argued for long by Economists. Coined by Adam Smith, the paradox points out a rather strange
but usual anomaly that water, despite being life-essential, has a very low market value; whereas
diamond, having little usefulness in our daily lives, is very costly.
Concepts of Utility
To explain this paradox, Economists have taken the aid of concepts of Marginal Utility and Total
Utility. It is suggested that neither the supply, nor the demand ‘alone’ determine the market value of
a commodity. Not even the Labour Theory of Value, viz., ‘Commodities requiring high labour input
for production cost more’, is capable of describing this price disparity.
