Consider the famous A????1diamond-water paradoxA????1: water is necessary for life and extremely useful, but is very cheap on a per gallon basis (NYC charges $3.70 for 748 gallons), while diamonds are not much use for most things, but extremely expensive on a per unit basis (a one-carat colorless diamond with good proportions and good certification is trading at about $9500 this week). Even though a diamond is more expensive than a gallon of water, you would probably rather have a gallon of water on a lifeboat than a diamond. For modern New Yorkers, are the gallons of water needed to sustain life marginal or infra-marginal? Does the cheapness of water increase or decrease the consumer surplus realized from it? Does the expensiveness of diamonds increase or decrease the consumer surplus realized from them? Is market price the value to the consumer of the marginal unit or of an infra-marginal unit? Make a distinction between market price and consumer surplus and resolve the diamond-water paradox. In particular, when someone (not an economist) says, A????1Diamonds are valuable,A????1 what does she mean in the language that economists mean? When someone says, A????1Water is valuable,A????1 does she mean the same thing? What does she mean in the language economists use?

Consider the famous A????1diamond-water paradoxA????1: water is necessary for life and extremely useful, but is very cheap on a per gallon basis (NYC charges $3.70 for 748 gallons), while diamonds are not much use for most things, but extremely expensive on a per unit basis (a one-carat colorless diamond with good proportions and good certification is trading at about $9500 this week). Even though a diamond is more expensive than a gallon of water, you would probably rather have a gallon of water on a lifeboat than a diamond.

For modern New Yorkers, are the gallons of water needed to sustain life marginal or infra-marginal?

Does the cheapness of water increase or decrease the consumer surplus realized from it?

Does the expensiveness of diamonds increase or decrease the consumer surplus realized from them?

Is market price the value to the consumer of the marginal unit or of an infra-marginal unit?

Make a distinction between market price and consumer surplus and resolve the diamond-water paradox. In particular, when someone (not an economist) says, A????1Diamonds are valuable,A????1 what does she mean in the language that economists mean? When someone says, A????1Water is valuable,A????1 does she mean the same thing? What does she mean in the language economists use?