Why are diamonds more valuable on the market when water is more useful for life?
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There are two meanings to the word “value.”
- utility value ( utility value )
- Exchange value ( exchange value )
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Adam Smith believed that exchange value is “determined by the effort required to obtain it” (labor value theory).
- Therefore, it has nothing to do with the utility (use value) of goods.
marginal utility
- The value of an object to some people depends on how much they have of it.
- The more you have, the less it’s worth.
- Water is worth more (A>B), but if a lot of it is supplied, its value goes down (B>C)
- People dying of thirst in the desert would offer diamonds to get water.
- Leads to talk of rarity and [scarcity value
- The value of a good is not universally determined, but rather the less supply of the good a person wants, the more valuable the good becomes.
- Rarity alone does not create universal value.
- If I create a new programming language FooBar now, it is very rare because there is only one user of that language in the world, but it is worthless because no one wants a FooBar programmer.
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