The Diamond-Water Paradox attribution goes to which economist?

The Diamond-Water Paradox attribution goes to which economist?

• A. Adam Smith
• B. Carl Menger
• C. David Ricardo
• D. Karl Marx

Answer: (B)

The Diamond-Water Paradox is about why water, though essential to life, often has a low price while diamonds, which are not essential, command a high price. The key idea that explains this is marginal utility—the value of a good comes from the usefulness of the next unit you would consume, not the total usefulness of all units. Carl Menger is the one credited for introducing this marginal-utility perspective. He showed that because water is typically abundant, the marginal utility of an extra unit is small, so its price is low. Diamonds are scarce, so the marginal utility of an additional diamond is high, pushing up its price. This resolution fits how prices actually work in markets and is the reason the paradox is attributed to him. Historically, Adam Smith noted the puzzle about value in use versus value in exchange, but the modern explanation using marginal utility comes from Menger and the marginalist turn in economic thought. The other economists listed didn’t provide this specific explanation through marginal utility.

The Diamond-Water Paradox is about why water, though essential to life, often has a low price while diamonds, which are not essential, command a high price. The key idea that explains this is marginal utility—the value of a good comes from the usefulness of the next unit you would consume, not the total usefulness of all units.

Carl Menger is the one credited for introducing this marginal-utility perspective. He showed that because water is typically abundant, the marginal utility of an extra unit is small, so its price is low. Diamonds are scarce, so the marginal utility of an additional diamond is high, pushing up its price. This resolution fits how prices actually work in markets and is the reason the paradox is attributed to him.

Historically, Adam Smith noted the puzzle about value in use versus value in exchange, but the modern explanation using marginal utility comes from Menger and the marginalist turn in economic thought. The other economists listed didn’t provide this specific explanation through marginal utility.