While it is true that there is a large demand for water, there is also a large supply of it. Potable water is still in abundance on Earth. While water imported from exotic locales can be a little more expensive than local water, people still consider the supply of water to be abundant.
Diamonds, on the other hand, are scarce. While the demand for water is higher, diamonds are still more expensive. The supply of diamonds is controlled and many diamonds require processing either for jewelry or industrial purposes before they are used. In order to create a higher price for diamonds, producers scale back their mining efforts or do not release as many to the public. Also, diamonds are not always in demand, unlike water.
In economics, supply is just as important as demand when it comes to determining a purchase price in a free market. While water is more useful than diamonds, there is more of it and it's supply for now is quite constant. Diamonds, on the other hand, are rather scarce,...
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