Why Water is cheaper than Diamond?
Water is essential for life, we can’t imagine the existence of life without water but in the case of diamonds, we can easily live our lives without having a Diamond but still, a Diamond is worth a million times more than a glass of Water why?
The answer lies in the marginal utility of water and diamond.
The marginal utility tells you about the impact each unit of an item has. This impact can be positive, negative, and neutral. Sounds complicated. Isn’t it?
Let’s see how marginal utility works in the case of Water
Suppose you’re thirsty and eagerly looking for water. You bought a bottle for 20 Rs. and because you ain’t satisfied you asked for another bottle and bought it for 20 Rs. again. But after that, you are now satisfied and don’t want to buy another bottle of water. Now the shopkeeper even agrees to give you a bottle for say 10 Rs. but you won’t buy it because it’s not worth it anymore, you are not thirsty but there are plenty of bottles that the shopkeeper has and natural water is in an abundance state. Due to this lack of importance of the third bottle, its price got diminished.
Let’s see how this works in the case of Diamond
Suppose you want to impress your wife and wants to give her a Diamond on her birthday, You bought a diamond for 1 million Rs. Now your wife is super happy but you have extra money so you would buy another diamond for the same price i.e. 1 million Rs. Now because Diamond is a great investment option you can buy them as long as you have enough money to buy them and every extra unit of diamond would give the same amount of satisfaction but Diamonds have a far limited supply than water that’s why they are expensive and that’s why every extra unit of Diamond won’t lose its price.
But suppose you are in a desert and fighting for your life and someone gives you a choice to keep either one glass of water or one diamond, What would you choose?
Of course, a glass of water as it worth your life, because a Diamond can’t satisfy your thirst. Here you are trading a Diamond worth 1 million Rs. for a Glass of water which would worth hardly 20 Rs. in usual circumstances.
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