Paradox is resolved by distinguishing between total

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Paradox is resolved by distinguishing between total utility and marginal utility Total utility that we get form water is enormous, but as we consume more of something, the smaller is its marginal utility Diamonds have a small total utility relative to water, but because we buy few diamonds, they have a high marginal utility When a household has maximized its total utility, it has allocated its income in the way that makes the marginal utility per dollar equal for all goods That is, the marginal utility from a good divided by the price of the good is equal for all goods Another way to think about the paradox of value and illustrate how it is resolved uses consumer surplus Water is cheap but brings a large consumer surplus, while diamonds are expensive but bring a small consumer surplus Temperature is an analogy to utility
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Conclusion: Marginal utility helps us to understand why people buy more of a good or service when its price falls and why people buy more of most goods when their incomes increase.
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