Diamonds VS. Water

[The_Q]

Ah, yes, the infamous diamond-water principle. What a wonderful way to start off my new year of economics! Most people who have taken economics courses know of this principle (it basically illustrates supply and demand). Quite simple, really.

Diamonds do next to nothing. All they're useful for are cutting more diamonds. Sure, you can refract light, but other less valuable crystals can do that. All they really do is look pretty and cost a lot.

Water, on the other hand, is absolutely essential for life. The average human can't go 3 days without water before he's dead. Going low on water will have immediate physical effects such as fatigue and irritability. I don't know of a creature that can survive without water affecting a certain stage of it's life. Water, however, costs very little.

Why is it that diamonds cost so much and water costs so little? It's because there are very few good diamonds. Water covers 70% of the Earth (even salt water can be turned into drinking water).

Why, then, does rarity drive the price? Well, it's not just rarity. The demand of the product also plays a role. Diamonds, for instance, are beautiful. Having diamonds boosts your social status (in theory) and diamonds carry with them symbolism. The purity of love between an engaged couple, for one. Water is also something that everyone wants. It's essential to life, remember?

The combination of rarity and desire for diamonds causes their price to soar. On the opposite end we have water, which is in high abundance and high demand, but doesn't reflect it's demand in the prices (actually, it does. In comparison to other drinks, water often costs the least. It's availability and lack of flavor drives down the price).

The same goes for me. Why is it that I don't charge you people for each view of my posts? Well, they're in a great abundance, for one. I do enjoy posting here. To add to that, I'm pretty sure it's not like you guys demand for my posts (though some of you do get rather insistent). The price is there, though. Many spend time reading them and other spend time reading and posting about them.

Actors don't get this, though. There is only one Clint Eastwood. Maybe many people who want to be him, but only one true Clint. If someone wants to cast Clint and only Clint, Mr. Eastwood would be able to drive up the price as high as he wants. He's got a monopoly on himself. The system works well until we get clones. Then poor Clint gets competition for himself.

Next time we'll cover incentives and why they matter.

Q

[jewpinthethird]

I can see what you mean....but better yet:

Why is it that Water cost more than gasoline (petrol)? (In California) You can buy a gallon of gasoline for about $1.75 - $2.30. However, 20 oz. of Water will cost the same amount.

According to what to your thesis, it is the gasoline that should cost more, since after all, it is finite (Americans seem to have forgotten that with the whole goddamn, f*cking SUV madness.) Water however, is infinite (until someone decides to start shooting water into space).

Water infact costs the same price if not more than that of other drinks (as long as it comes in a nifty plastic bottle). I dont understand why either. Most tap water is actually cleaner that bottled water since there are no regulations on bottled water.

[sleeplessdragn]

Where the hell do you get gas for that price?! In my part of california gas is like $2.40.

And with the introduction of synthetic diamonds hasn't the demand for the real stuff declined? Just like the cloning of actors.

Oh, and bottled water costs more because of the plastic bottle as opposed to the metal can. At least i think thats how it works.

[jewpinthethird]

Originally Posted by sleeplessdragn

Where the hell do you get gas for that price?! In my part of california gas is like $2.40.

And with the introduction of synthetic diamonds hasn't the demand for the real stuff declined? Just like the cloning of actors.

Oh, and bottled water costs more because of the plastic bottle as opposed to the metal can. At least i think thats how it works.

1. Palm Springs Area, you can usually get 87 (the cheap kind) at around $1.80 to $2.00.

2. Nothing compares to the real thing.

3. If it is because of the plastic bottle, then how come sodas arent more expensive? I mean, after all, Sodas do contain (carbinated) water, as well as sugar, caffine, and other whatnot.

[sleeplessdragn]

Well the carbonated water is very cheap and unfiltered. And i believe its the filtration process which causes bottled water, in combination with the plastic, to be more expensive. Hmm, could be the fact that the water is also filtered at "special" places, like fiji or whatever, and then is shipped to stores, rather then local bottling plants for soda.

EDIT: In the Souf, gas is as precious as diamonds, apparently.[/sarcasm]

[QreepyBORIS]

Diamonds can cut...ANYTHING. They are surprisingly useful for this!

PS: You cut diamonds with lasers nowadays.

[Tasselfoot]

reasons why water costs the same as gas:

1. you are buying a single 20oz bottle of evian (naive backwards, for obvious reasons). evian is an upper tier water, and is assumed to have gone through great filtration processes. plus, you are paying for the brand name. plus, you are paying an inflated price so the store that you bought it from can make a profit. all of that leads to a $2.00 bottle of evian.

now, not sure how many of you fine young men (and women) have gone and spent quality time in the supermarket. no, not just hanging around with a bored look while mother buys you lean pockets and instant noodle. were you aware that your supermarket sells gallon jugs of water? i am not sure of the price in CA, but i know in NYC (where cup of noodles are $1.00 each) it is around $1.50. an even better example of this is my local supermarket in PA. they not only sell gallon jugs of water for $.89, but they have a station set up that you can refill your old gallon jug for $.35. This clearly shows the low price of water compared to the high price for plastic (comparatively).

Also, to go back to the soda/water question... from a vending machine, 20oz of soda costs the same is 20oz of water.

Lastly, Q... was there a purpose to this post? you basically just stated facts without having any real questions about it. others have found questions to ask from your facts.

If you'll notice, Evian is spring water...which obviously takes a lot more hassle to collect. Aquafina and Dasani (the 2 leading brands of water) are both simply purified. Meaning they're glorified tap water, bottled simply for convenience.

Real spring water is the best water you'll ever taste, assuming you actually drink it at the spring. Drink it when it's bottled and it loses all of its natural flavor.

[themanwithsauce]

1. you are buying a single 20oz bottle of evian (naive backwards, for obvious reasons). evian is an upper tier water, and is assumed to have gone through great filtration processes. plus, you are paying for the brand name. plus, you are paying an inflated price so the store that you bought it from can make a profit. all of that leads to a $2.00 bottle of evian.

Wow, 2.00 for a bottle of water that's actually less healthy for you than the stuff that comes from your faucet. That's what really kills me. And it really doesn't taste all that better to me. It just had all the metals, vitamins, fluoride, and all the other stuff that's
purposely put into our water systems so that we live a more healthy life.

Here's an economics lesson you can live with- you can either pay 5 cents or so to fill any ordinary bottle with water from your sink with some trace amounts of substances that are quite good for you or you can pay more for water with less in it but a fancy label that was probably once tap water itself that was just ran through a filter.

[Tasselfoot]

sauce... see what chardish said as to the origins of Evian.

now, IMO... people buy things like Evian for a few reasons: convienance, opportunity (out and about, get thirsty, have to buy something), status, preference.

to continue with econ 101, its all about the cost/benefit. people are willing to pay the cost, because to them, the benefit is greater. its as simple as that. now, that doesn't say that the benefit outweighs the cost for EVERYONE... i, for one, greatly enjoy tap water. great taste, cold, and FREE!

If you want status from water you can do a lot better (worse?) than Evian. I was at some fancy restaurant once and they brought us some bottles of imported water from overseas that looked like wine bottles and cost about $7 per liter. It was very good water, yes, but still WATER.

Thankfully my cousin's brother was the headwaiter there and he made sure we got everything but the entrees free, + complimentary dessert, hors d'ouevres, etc. Otherwise I would never pay $7 for a wine bottle full of water.

[Tasselfoot]

Chardish... thats pretty standard at very fancy places. They don't serve water from the tap, for the obvious reason... people go to fancy restaurants for the best. So everything they get is the best, even water. Just make mine Sin Gas. I hate those bubbles. And, yes... its amazingly good water.

[blahblah18]

A) evian is the nastiest bottled water of all of them.
B) the reason gas prices are so low is because hey're subsidized tremendously.. if you take any environmental science courses you'll see that the prices are hacked and slashed everywhere... although water prices are subsidized too... they're the 2 biggest subsidized commodities, therefore causing no incentive to not use them in excess. go to europ where gas is 5 dolalrs a liter

[LateralusAngel]

In the end it all boils down to benefits vs. cost once again. It also has alot to do with social status sadly enough. It would be extremely embarassing for someone like say Paris Hilton, to be seen drinking tap water. And because diamonds make such a large impression on other people, she is of course willing to spend perhaps millions of dollars on them.

Don't forget though one of the driving factors behing price, which has been hinted to, would be the region where the product/service is being sold. Technically as the standards of living increase so does the price.

[Tasselfoot]

Lateralus. Thanks for saying exactly what I (and others) said.

PS - please crop your signature. the maximum high on sigs in 250pixels, yours is 332. thanks.

[The_Q]

You guys are starting to annoy me with this. The questions are fine but "Evian is the nastiest bottled water of them all" has not place in the CT forums, let alone this thread (especially with the lack of evidence).

Why am I posting this? Because econ fascinates me. If I hadn't stumbled upon it one day I wouldn't be enjoying myself as much as I am. I also want more people to know more about the wonderful world of economics. Therefore, I will now start a weekly econ rant.

Ok, let's start off by pointing out that bottled water is a new phenomenon. Why is it that it's so expensive? Well, the brand name, of course. Also because of the filtration it's put through. You've got to pay for the costs of producing it and it's bottle. You also have to pay so that the company and many suppliers it goes through make a decent profit. Then you also have region (Angel mentioned it.) and cost benefit. I'm sure we'll get into a pricing thing eventually.

I think I had more but I'm pretty sure I forgot it.

Q

[MonkeyFoo]

It's crazy how marketers can fool us with the "purified using state-of-the-art reverse osmosis filtration" labels. It's a clever marketing device to confuse people who don't know what it is into believing that it costs a lot of money to filter water using that method. In case you don't already know, reverse osmosis is where they pressurize the water on one side of a semi-permeable membrane. Smaller molecules come out in a higher concentration on the other side than they were in the pressurized side. The pressure counteracts the general flow of osmosis, toward the less pure side of the membrane. How much can it cost to pressurize that water? A cent per gallon per hour or so, maybe. Some day, maybe I can take advantage of an uninformed public and make a million. That'd be the day, but I'd just feel so cruel...

Summary: It is likely less expensive for bottled water companies to use new filter techniques, and it may not even be more effective than before. So, the price of water should go down despite the cost of installing the new purifiers, but instead the business is booming because marketers have applied the magic formula: "state-of-the-art" + technical-sounding science terms = must-have product that people assume costs bundles to produce.

That's not a summary, but whatever.

Another common example of the formula being applied is with nutrition: "Fortified with Omega-3 fatty acids." = Nutritious! New scientific breakthroughs! Must have!

Omega-3 just means that there is a triple (double?) bond instead of a pair of hydrogen atoms, 3 carbon "links" in from the end of the fatty acid. (omega=greek for z=end) Of course, I don't mean to say that Ω-3's aren't healthy, it's just that writing that on the label makes consumers think that they are getting something new and special, when really Ω-3's are in lots of foods, and they have been there since before the invention of the wheel.

[eyespewgreekfire]

Part of this whole bottled water thing is that, when you buy it at a restaurant or some place like that, they can get away with charging alot. People are willing to buy the water because there is no cheaper alternative. If you go to a big store like cotsco, bottled water costs considerably less than soda. The principles of supply and demand only apply when there is sufficient competition for prices to change. Add consumer misinformation, and there quite often being only one brand of bottled water to buy at a restaurant, and you get these very high profit margins. If people somehow were allowed to sell water in other people's restaurants, we would get a dramatic decrease in the price.

[alainbryden]

I loathe monopolies with a passion. Monopolies over products / information / power.

Your next rant should be about monopolies, oligopolies, and collusions.

After that, another interesting thing to talk about would be Veblin and Giffen goods. Those fascinated me.

Economics was the most interesting course I ever took, it's a shame I hated the teacher & can't take it in university.