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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.

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