When economists were trying to figure out why some things are valuable and some things are not worth very much, they wallowed in conundra: Water is absolutely necessary for life, but the price is pretty low. Gold, which is pretty much a frill, is tremendously valuable. The solution came from two directions. First, the insight that value is subjective, not determinable by looking at the physical attributes of a good or service, but rather in the eye of the potential buyer. The second key insight was that decisions are made at the margin. We as consumers don't decide whether we want water or gold. We decide whether we want to purchase one additional gallon of water, or one additional ounce of gold. Our judgment depends on how much of each we already have.
Listen to a great and humorous TED talk about value, from an advertising man's perspective.
Hat tip to Patrick Galvin of the Buzz Builder blog.