Editing Marginalism (section)

=== Paradox of water and diamonds ===
{{main|Paradox of value}}
The law of diminishing marginal utility is said to explain the paradox of water and diamonds, most commonly associated with [[Adam Smith]],<ref>Smith, Adam; ''An Inquiry into the Nature and Causes of the Wealth of Nations'' (1776) Chapter IV. "Of the Origin and Use of Money".</ref> although it was recognized by earlier thinkers.<ref>{{cite book|first = Scott|last = Gordon|year = 1991|title = History and Philosophy of Social Science: An Introduction|chapter = The Scottish Enlightenment of the eighteenth century|publisher = [[Routledge]]|isbn = 0-415-09670-7}}</ref> Human beings cannot even survive without water, whereas diamonds, in Smith's day, were ornamentation or engraving bits. Yet water had a very small price, and diamonds a very large price. Marginalists explained that it is the ''marginal'' usefulness of any given quantity that matters, rather than the usefulness of a ''class'' or of a ''totality''.  For most people, water was sufficiently abundant that the loss or gain of a gallon would withdraw or add only some very minor use if any, whereas diamonds were in much more restricted supply, so that the loss or gain was much greater.

That is not to say that the price of any good or service is simply a function of the marginal utility that it has for any one individual nor for some ostensibly typical individual. Rather, individuals are willing to trade based upon the respective marginal utilities of the goods that they have or desire (with these marginal utilities being distinct for each potential trader), and prices thus develop constrained by these marginal utilities.{{Citation needed|date=October 2021}}