Economist Distinguishing Value Concepts

The question asks to identify the economist who differentiated between 'value in use' and 'value in exchange', using the famous 'diamonds and water' example.

Value Concepts Explained

• Value in Use: This refers to the utility or usefulness of a commodity. It signifies how much a good satisfies human wants and needs.
• Value in Exchange: This refers to the purchasing power of a commodity; its value relative to other goods when traded in the market.

The Diamonds and Water Paradox

This classic paradox highlights the difference between the two values. Water is essential for life and thus has a very high 'value in use'. However, it is generally abundant and inexpensive, having a low 'value in exchange'. Diamonds, conversely, are not essential for survival ('value in use' is low) but are rare and highly desired, giving them a high 'value in exchange'.

Attribution to Economist

The distinction between value in use and value in exchange, along with the illustrative example of diamonds and water, was notably discussed by the classical economist Adam Smith in his seminal work, "An Inquiry into the Nature and Causes of the Wealth of Nations" (1776).

Therefore, the correct option is the one mentioning Adam Smith.