In chemistry for 16 year olds we used Hydrochloric Acid a lot, it was given to us in 1.0 molar and 2.0 molar concentration in bottles, but it was always pH 3 or thereabouts. In chemistry for 17-18 year olds we used hydrochloric acid a lot too, it was given to us in 10 molar concentration in flasks, and was still the same pH as we used the year before. I beleive it was delivered to the school in 18 molar concentration.
Adding water to it does not change the pH, but it does dilute it, so that the concentration of acid within the solution is much less. Hydrochloric acid is -always- the same pH, but the concentration of it can vary wildly, maybe thats where your confusion lies. And of course, a really low concentration of a low pH acid, will at least appear to be almost neutral, because its likely >90% water anyway.
I think in your argument you are both technically right, the pH of the acid itself is unchanged, it is still 3. But because by adding so much water to it, the solution is made up effectivly 100% water, it will have the pH of water, i.e 7.
Man I miss chemistry
