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Wize AP Microeconomics Textbook > Theory of Consumer Choice

Paradox of Value

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Paradox of Value

The Paradox of Value tells us that prices for goods are based on marginal utility rather than total utility. Example: Water gives us more total utility than diamonds (we need water to live), yet we are willing to pay a lot more for diamonds. This is because diamonds offer us a higher marginal utility (since there are very few diamonds in the world).


  • In the diagram above if you have consumed 8,000 bottles of water in your life, the marginal utility from the last bottle of water will be
    1.5
    which is low so you will be willing to pay a low price for a bottle of water.
  • If you have no diamonds and you buy your first diamond ever, it will give you a marginal utility of
    1000
    which is high so you will be willing to pay a high price for that first diamond.
  • This helps explain why the marginal utility curve looks the same as the demand curve. As the marginal utility falls, you are willing to pay a lower price for the good.

Practice: Paradox of Value

The paradox of value tells us that: