Think it this way, which do you need more, gold or water?



Of course you need water more.

Which one will you pay more money for? One kilogram of gold or one kilogram of water? Of course, gold.

Why?

That's because in economy, only the marginal matters. What does that mean?

Water is precious.

However, the value of water is the value of that least useful water that you still use anyway.

You use water to drink, you use water to take a shower, you use water to water your plants, then you use water to wash your car.

Obviously, the water that you drink is much more useful than the water that you use to wash your car. However, the value of water is the value of that least useful water.

Why is it so?

Thats because youre trying to maximize your profit. Of course, you use your water for whats the most useful first.

Yes, but why is the value of water so low?

Say the value of water is higher than that. Say it is $5 per gallon. The satisfaction youll get from washing your car is $1 per gallon. Then you simply dont wash your car.

Say the value is lower than that. The satisfaction of washing your car is $1 per gallon. However, water is so abundant that its cost is only $0.50. Then youll use water for stuffs that give even less satisfaction, such as washing your house.

In fact, water can be so abundant that the price is negative. A negative price means that youre willing to spend money to get rid that water. Such is the case during a flood.

In which case, youll actually spend money to get rid of water, such as buying water pumps. Thats what happened to one of my grandmas because her house is often flooded.

Whats the moral of the story? Be rare. When youre rare, youre valuable. When youre not rare, youre worthless.