Why Oil is Expensive than Water?

The fact is that items which are rare and worth more in money terms are less useful like oil than items which are plentiful and have a low money value. This shows that the price of something is determined by its scarcity rather than its usefulness. Water is an essential of life, but because of its abundance has a relatively low price. Oil, on the other hand, has little use in comparison with water, but because of their relative scarcity command high prices. Over the years, economists have explained this unusual thing known as paradox of value by other ways as well. This paradox of value can be explained by the concept of consumer surplus and law of Equi marginal principle. Explaining this by way of consumer surplus, we can say that the seller of oil knows that oil is scarce, so he extracts the ma or portion of consumer surplus. !onsumer surplus is the value received from a commodity minus its price. "or oil, the consumer surplus is very low. The seller charges almost the maximum price the consumer can pay. #ut, for water, high price cannot be charged because of abundance of water. The supply of water is perfectly elastic. $ence, the consumer surplus in the case of water is very high. The consumer has to pay very little price of water because it is in abundance, even though the value received from water is high as it is a basic necessity of life. This difference in value between water and oil will be explained by the consumer surpluses. The consumer surplus in water is high, but in oil, it is low. Explaining this by way of law of equi%marginal principle, marginal utility per rupee spent on both oil and water is equal. $igh marginal utility derived from oil divided by high price of oil is equal to low marginal utility derived from water divided by low price of oil. &arginal utility of oil is high as when we use more oil, we get the same utility, it does not decrease by much. #ut, for water, the marginal utility of second, third and fourth consecutive glass of water goes down very rapidly.