We know that diamonds are expensive and water is cheap: Diamonds are high in price but are of limited usefulness, whereas water is low in price but essential for life. As economist Adam Smith (1776) described:

"...Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it." (Adam Smith, Wealth of Nations, 1776, Book 1, Chapter IV).

Why are diamonds more valuable than water?

Purpose of Discussion:

Using the concept of marginal utility to explain the following:

Why is water, which is essential to life, far cheaper than diamonds, which are not essential?