Although he was a prolific artist, Pablo Picasso painted only 1,000 canvases dur

Question

Although he was a prolific artist, Pablo Picasso painted only 1,000 canvases during his "blue period." Picasso is now dead, and all of his Blue Period works are currently on display in museums and private galleries throughout Europe and the United States.
a. Draw a supply curve for Picasso Blue Period works. Why is this supply curve different from ones you have seen?

b. Given the supply curve from part a. the price of a Picasso Blue Period work will be entirely dependent on what factor(s)? Draw a diagram showing how the equilibrium price of such a work is determined.

c. Suppose rich art collectors decide that it is essential to acquire Picasso Blue Period art for their collections. Show the impact of this on the market for these paintings.

Explanation / Answer

a.)The supply curve will be a vertical line originating from the Y-axis (supply). This is so because there is a fixed supply of these paintings (he's dead, no more can be produced). This is referred to as "perfectly inelastic supply" - no matter what the price, no more paintings can be produced to meet any increase in demand. (Elasticity of supply is the measure of change in supply in response to a change in price; %change in Q supplied, divided by %change in price, in this case, perfectly inelastic supply - no change in price can change the Q supplied.) b.) price will be entirely dependent upon demand...equilibrium price = price at intersection of the demand and supply curves, and since the supply curve doesn't change, only demand can change. Demand only changes if there are close substitutes (none here), the amount of income available to spend on any given item changes (possible here), and time (e.g. you don't need to buy one of these every day to "survive"). c.) if rich art collectors consider it "essential" (i.e survival, as above), the equilibrium price will rise, as the demand curve shifts to the right -

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