The monetary value of a good or service is mainly determined by supply and demand in the market, not by how “important” or “necessary” it is to human survival. This is why some necessities like water or basic grains can be cheap, while unnecessary items like designer clothes or luxury gadgets can be very expensive.

What sets a price?

Economists usually point to a few key forces that shape price:

  • Supply and demand equilibrium : The price tends to settle where the quantity people want to buy equals the quantity producers are willing to sell.
  • Cost of production : Wages, raw materials, technology, and overhead set a floor under which producers cannot profitably sell.
  • Market structure and power : Monopolies, branding, and limited competition allow some firms to charge higher prices than a purely competitive market would.
  • Perceived value and willingness to pay : If consumers feel something is special, scarce, or status‑enhancing, they are often willing to pay far more than its production cost.

None of these forces directly ask, “Is this thing morally important or a true necessity?” Markets instead respond to scarcity, competition, and willingness to pay.

Why some necessities are cheap

Many necessities are relatively cheap because:

  1. They can be produced at scale
    • Basic foods like rice or wheat, simple clothing, and soap can be mass‑produced with highly efficient technology and global supply chains.
    • When production scales up, the cost per unit drops, putting downward pressure on prices.
  2. Competition is intense
    • Many firms can enter markets for simple necessities, so they compete on price, squeezing profit margins.
    • If one producer raises prices too much, consumers can easily switch to another brand or supplier.
  3. Demand is steady and predictable
    • Because people always need certain basics, producers can plan large‑scale production with less risk, which also lowers costs.
    • Long‑term contracts and standardized processes (for example, in agriculture or basic manufacturing) keep prices relatively stable.

So a necessity with abundant raw materials, efficient production, and many competitors can end up being cheap, even though it is crucial for life.

Why some non‑necessities are expensive

Non‑essential or luxury items often become expensive because:

  1. Brand, status, and psychology
    • Luxury goods rely on perceived exclusivity and status. The high price itself is part of the appeal.
    • People may pay a huge premium for a logo, a story, or association with a certain group, not for physical functionality.
  2. Artificial scarcity and limited supply
    • Luxury brands often deliberately restrict supply (limited editions, small runs, controlled distribution) to keep demand high and prices elevated.
    • Some goods (fine art, rare collectibles) are inherently scarce and can’t be mass‑produced, so a few wealthy buyers bid prices up.
  3. Market power and differentiation
    • If a firm successfully convinces consumers that its product is “unique,” it faces less direct price competition and can charge more.
    • Patents, trademarks, or strong brand loyalty insulate prices from downward pressure.

In these cases, the item is not expensive because it is necessary, but because a mix of scarcity, marketing, and status competition allows sellers to set a high price.

The “paradox of value”

This question touches a classic idea often called the “paradox of value”: why is water, essential for life, often cheap, while diamonds, which are not essential, are extremely expensive?

  • The modern explanation:
    • Total usefulness of water is enormous, but the marginal unit (one more bottle in a world with abundant water) is not very scarce.
    • Diamonds are rare, so the marginal unit is scarce and commands a high price, even though diamonds are not life‑or‑death goods.

So markets price the next unit at the margin, based on scarcity and willingness to pay, rather than on the overall importance of the item to human life.

Putting it together

So:

  • Prices are determined by supply, demand, cost, market power, and perceived value.
  • Necessities can be cheap when they are easy to produce in large quantities and face strong competition.
  • Non‑necessities can be expensive when they are scarce, branded as status symbols, or protected from competition.

This explains why something essential like basic food can cost less than a branded pair of sneakers or a designer handbag, even though only the former is truly necessary for survival.