We must first look at the choices that consumers make that reflect demand curves. When economists look at this issue they are looking at supply and demand, they have developed models in which to explain the behaviors of people and their households. These models are geared towards figuring out ones spending, working, and saving habits. It is assumed that each choice is made after careful consideration of the benefits and costs of their decision. The premises for these models is to find out what & how to produce products, this is modeled after the Traditional Economic System.
Economists are concerned with exactly how much a person will pay for "goods" and that is considered marginal utility. All of this ties to the Diamond-Water Paradox because the demand for diamonds is high as is the price, with that the demand for water is also high but the cost is significantly lower. As the consumption of water increases it is valued less than the consumption of Diamonds. There is the old adage that, Diamonds are a Girls Best friend," with this being the cornerstone of the diamond market it makes this more valuable to consumers. Men tend to buy diamonds to makeup for mistakes and believe this will get them back into the good graces of their mate.
The marginal value of diamonds vs. water is on a
References: Lai, S. "Diamonds are Forever." The Filter^"the Liver on the web" July 2004. 5 Sept 2006 . Stastny, M. "The Diamond-Water Paradox." Mahalanobis Online Feb. 2004. 5 Sept 2006 .