How did the Marginal Revolution solve the diamond/water paradox?

0:00Focusing on individual action, we can see that individuals make their evaluations in marginal units. This is the so-called marginal revolution. In other words, they don't take the bread-diamond paradox, which Menger and the other marginalists solved. Namely, nobody is confronted in real life. They were looking at real-life action. Nobody is confronted with the choice of all the bread on the world versus all the diamonds in the world. In other words, if the angel Gabriel came down to us tonight and said, you know, Captured nationwide television, worldwide television, it's the people of which listen. You're not confronted with a choice between all the bread on the world from now on forever and all the diamonds in the world, you're going to lose one of them, one set. Probably most of us will vote for bread, but the point is we're not confronted with that kind of choice yet.

0:46And we're confronted with individual choice, like should we buy a loaf of bread or a five carat diamond or something like that. And in these marginal units, then we realize that supply becomes the major focus here. In other words, the more abundant, if bread is very abundant, the unit of bread is not going to be worth much because it's super abundant. On the other hand, if diamonds are very rare, each individual diamond is going to be worth a lot. So in other words, these valuations take place in units, in so-called marginal units, in loaves of bread or pounds of butter or whatever. If you look at it that way, you'll see why water might be placed very highly in the desert and not much in a very high water area.