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The 4 C's

The price of diamonds is determined by four factors, also known as the 4 C's—color, cut, clarity, and carat weight.

Diamonds are cut into several styles, with the brilliant cut being the most common. But the "cut" category of the 4 C's doesn't actually deal with shape. Instead, it refers the diamond cutter's skill in working the stone, which allows it to sparkle as the light hits its faces.

"Clarity" relates to the number of flaws, or inclusions as they're called in the trade, a stone has. Very few diamonds have no inclusions, which are graded by size after examining the stone under a 10x magnification device called a loop. Some inclusions can be seen with the naked eye and these stones are considered to be the poorest quality for jewelry.

To the inexperienced eye all diamonds appear to be colorless or clear, but if they are laid side by side they do vary in color. The most prized diamonds are classed as colorless—D, E, and F on the diamond merchant's color scale—whereas V, W, and X have a yellowish hue and are less expensive.

Finally, the weight of a diamond also is fundamental to the price, and the stones are graded in carats (each carat being 0.2 grams). Larger diamonds are more rare than smaller diamonds, so on a simple scale they are more expensive. But when you take all 4 C's into account, you can see why a smaller, flawless, and colorless stone may be pricier than a larger, yellow-toned stone with obvious flaws.

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