Water Paradox: “The Wealth of Nations” by Adam Smith Essay

Exclusively available on IvyPanda Available only on IvyPanda

The case dwells upon the paradox Adam Smith mentioned in his famous work The Wealth of Nations (Tucker 157). The paradox consists in the following: even though water is more important for people’s existence, its price is much lower than that of diamonds that are not as crucial for people’s life. This paradox can be easily explained with the help of such concepts as total and marginal utility. Smith employed only the principle of the total utility. In other words, he focused on the importance of water and diamonds for people’s lives.

We will write a custom essay on your topic a custom Essay on Water Paradox: “The Wealth of Nations” by Adam Smith
808 writers online

However, the concept of marginal utility, which was developed in the 19th century, will help solve the puzzle. The case includes a graph that shows the difference between marginal utility of water and diamonds. Since the amount of water is much more significant than that of diamonds, marginal utility of the latter is high.

People are more eager to buy more diamonds as they are comparatively rare. At the same time, people have plenty of water and the vast majority of them can access water quite easily. Therefore, when it comes to water and diamonds, the price depends on availability of the product rather than its total utility.

It is quite easy to imagine the situation when diamonds will cost less than water. When the sources of water are scarce, people will be more willing to buy more water (to make their own reserves, which could be used by them and their families). People need water to live and, if they understand that they will not be able to access the resource whenever they want, they will try to accumulate this resource to have plenty of it available for them.

Thus, if the amount of drinking water reduces significantly, people will soon understand that they should accumulate more water. People are very dependent on this resource, as they cannot live without it. Even if the amount of diamonds remains the same, people will still be more eager to buy more water to replenish their reserves, as they will not be able to use diamonds for drinking.

It is possible to note that the marginal utility of water as well as total utility would be high and the price would go up significantly. It is possible to assume that the water price will be significantly higher if the availability of this resource and diamonds will be the same. Everything would depend on the amount of water and its accessibility.

It is necessary to note that the link between the price and total utility is quite weak. Irrespective of the price, total utility of water can never be lower than that of diamonds. Total utility has nothing to do with availability of the product and, hence, the price cannot depend on total utility. The prices given suggest that the marginal utility of diamonds is quite high.

1 hour!
The minimum time our certified writers need to deliver a 100% original paper

Thus, it is quite difficult to get diamonds, but water is still easily accessible. However, this does not make diamonds more important than water in terms of their necessity to people’s lives. Water will still have high total utility, which is based on the importance of the product. Moreover, it can be difficult to estimate the difference between total utility of water and diamonds as water is essential for people’s survival while diamonds are only used in industries.

Works Cited

Tucker, Irvin B. Microeconomics for Today. Mason, OH: Cengage Learning, 2012. Print.

Print
Need an custom research paper on Water Paradox: “The Wealth of Nations” by Adam Smith written from scratch by a professional specifically for you?
808 writers online
Cite This paper
Select a referencing style:

Reference

IvyPanda. (2022, March 15). Water Paradox: "The Wealth of Nations" by Adam Smith. https://ivypanda.com/essays/the-wealth-of-nations-by-adam-smith-essay/

Work Cited

"Water Paradox: "The Wealth of Nations" by Adam Smith." IvyPanda, 15 Mar. 2022, ivypanda.com/essays/the-wealth-of-nations-by-adam-smith-essay/.

References

IvyPanda. (2022) 'Water Paradox: "The Wealth of Nations" by Adam Smith'. 15 March.

References

IvyPanda. 2022. "Water Paradox: "The Wealth of Nations" by Adam Smith." March 15, 2022. https://ivypanda.com/essays/the-wealth-of-nations-by-adam-smith-essay/.

1. IvyPanda. "Water Paradox: "The Wealth of Nations" by Adam Smith." March 15, 2022. https://ivypanda.com/essays/the-wealth-of-nations-by-adam-smith-essay/.


Bibliography


IvyPanda. "Water Paradox: "The Wealth of Nations" by Adam Smith." March 15, 2022. https://ivypanda.com/essays/the-wealth-of-nations-by-adam-smith-essay/.

Powered by CiteTotal, the best citation creator
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda. Request the removal
More related papers
Cite
Print
1 / 1