Why should diamonds be priced so high and water be priced so low even when water is essential to sustain life while diamonds are not?

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Solution

One should distinguish between 'value-in-use' and 'market value' of a commodity. Water has high 'value-in-use', of course. But its market value (price) is low (compared with diamonds) because it is available in plenty. In terms of its market supply, water is scarce, but not as scarce as diamonds. Therefore, the market price of water is much lower than of the diamonds.
Imagine a situation when you are in a desert and you are dying to quench your thirst. You are then ready to pay any amount for a glass of water. You might even be ready to forego a diamond in your possession just for a glass of water.

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