tutor2u | Paradox of Value

Study Notes

Paradox of Value

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 21 Mar 2021

The Paradox of Value is also known as the diamond-water paradox

Also known as the diamond-water paradox.

We understand that water is necessary to our life and that ornaments such as diamonds are not life-sustaining. But water typically has a low market price, while diamond jewellery has a high market price.

One reason is that, in most countries, water is abundant relative to demand whereas diamonds are scarce relative to demand.

The marginal utility of a diamond is often very high in part because it is used as a celebration of a life-event and also as a signal from one person to another of their commitment to each other.

  • Value in use i.e. drinking water to satisfy your thirst
  • Value in exchange – what a resource can be sold for in exchange for other products. Nothing is more useful than water: but it will purchase scarce any thing. The reverse is usually true for expensive jewellery

Changes in perceived utility from consuming different goods and services will have a direct effect on demand and also platforms used to provide the product.

Recommended

Exam support for 2022

Online Grade Booster Courses for A-Level Exams in May & June 2022

Exam technique, advance information support, live revision and more from the tutor2u subject specialist teams

Enrol now

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.