Consider how the availability of diamonds and water might be reflected with this marginal utility curve.
Diamonds: Because diamonds are limited in supply, people are likely to operate relatively high on the marginal utility curve, near the vertical axis. That is, the quantity consumed is relatively small. Click the [Diamonds] button to highlight this option.
Because the quantity is low, the marginal utility is high. The high marginal utility corresponds with a relatively high demand price. The total utility of diamonds, however, is indicated by the yellow area beneath the marginal utility curve. Because the quantity is limited, the total utility area is relatively small.
Water: Because water is abundant in supply, people are likely to operate relatively low on the marginal utility curve, near the horizontal axis. That is, the quantity consumed is relatively large. Click the [Water] button to highlight this option.
Because the quantity is high, the marginal utility is low. The low marginal utility corresponds with a relatively low demand price. The total utility of water, however, is indicated by the yellow area beneath the marginal utility curve. Because the quantity is abundant, the total utility area is relatively large.
Paradox Solved
The apparent contraction between price and utility is cleared up by distinguishing between marginal utility and total utility, and with the understanding that marginal utility, not total utility, is the key to determining price.
Moreover, this paradox can be turned on its head by considering what might happen should the relative abundance of water and diamonds change.
If water were as limited as diamonds, then the marginal utility and thus price would also be quite high. In fact, if water and diamonds were equally limited in supply, the price of water would likely be several times the price of diamonds.
If diamonds were as plentiful as water, then the marginal utility and price would also be quite low. If water and diamonds were equally abundant in supply, then the price of diamonds would likely be only a fraction of the price of water.