There is a very interesting article on BBC News that my colleague Inna has referred me to. It talks about how the small bottled water industry has managed to grow in the last 40 years. This looks nothing special unless you think about the fact that water is essentially free. You can quite easily drink tap water and will not feel any difference from the bottled water. However, people still spend billions of pounds each year on this natural beverage. So here is the irony, we are paying for things we can get for free. Is economic theory about rationality failing here? It is not according to the article.
So, where does the trick lie? Apparently, it is all about branding and marketing (although some bottles water executives disagree). Apart from the convenient packaging, people are supposedly buying trendy brands. I guess in the end we do derive different types of utility from the same resource. Marketing in this case plays a huge role in the market growth.
This paradox does not completely ruin our perception of Economics, but it does make us realise that there are still many things we do not understand.