In economics, what paradox asks why water is cheap while diamonds are expensive despite water’s greater usefulness?

The diamond–water paradox asks why water is cheap while diamonds are expensive despite water’s greater usefulness.

The paradox of value was discussed by Adam Smith in The Wealth of Nations, published in 1776. Smith observed that water has enormous use value but usually little exchange value, while diamonds have little practical use but high exchange value.

Marginal utility theory later offered a resolution. Prices are influenced by the value of the next available unit, not only by a good’s total usefulness. Water is often abundant, so an additional unit may provide little marginal utility. Diamonds are scarce, so an additional unit can command a high price.

The explanation depends on context. In a desert, an additional container of water may be extremely valuable, while diamonds may remain unnecessary. Prices also reflect scarcity, production costs, preferences, and market conditions.