What best describes the diamond water paradox proposed by Adam Smith?

The diamond-water paradox, articulated by Adam Smith, highlights the difference between total utility and marginal utility in economics. Water is abundant in most places and is crucial for life, which results in a low market price. In contrast, diamonds are scarce and not essential for survival, yet they command a high price due to their rarity and the perceived value society places on them.

This explanation underlines that while water has immense total utility in sustaining life, its abundance leads to a lower marginal utility, making it cheaper. Conversely, diamonds, with their limited supply and high desirability, carry a high marginal utility, resulting in their high market price. Therefore, the correct answer succinctly captures the essence of the paradox by contrasting the supply and demand dynamics of water and diamonds, clarifying why something so essential can be less expensive than something that is merely a luxury.