The Diamond-Water Paradox is attributed to which economist?

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

Answer: (D)

The Diamond-Water Paradox tests how price is determined by marginal utility and scarcity, not by total usefulness. Water is essential and very common in many situations, while diamonds are scarce and provide high satisfaction only in the next unit consumed. This makes the marginal value of a diamond higher than that of water, even though water overall is more useful. Carl Menger is the economist associated with this paradox because his marginal utility framework explains how prices arise from the value of the next unit consumed, not total usefulness, and he used this example to illustrate the shift from a labor-based value idea to marginal value. Classical thinkers like Adam Smith, David Ricardo, and Karl Marx emphasized other value ideas, but the diamond-water puzzle is tied to Menger’s marginalist perspective.