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Chapter 3: Problem 17

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.

Short Answer

Expert verified
Answer: The equilibrium price of Pablo Picasso's Blue Period paintings increases as the demand from rich art collectors increases, while the available quantity of paintings remains unchanged at 1,000. This is because the supply curve for these paintings is fixed and vertical, meaning price is solely determined by demand. As demand increases, the demand curve shifts to the right, resulting in a higher equilibrium price.

Step by step solution

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a. Supply curve for Picasso Blue Period paintings

: Since all 1,000 Picasso Blue Period paintings have already been created, the supply of these paintings is fixed and cannot change. This means that the supply curve is vertical at a quantity of 1,000 paintings, regardless of the price level. This is different from the usual upward sloping supply curves we see as the production of these paintings does not respond to changes in price.
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b. Determining the equilibrium price

: Given the fixed supply, the price of a Picasso Blue Period painting will depend solely on the level of demand for these paintings. The equilibrium price is determined at the intersection of the supply curve (at a quantity of 1,000 paintings) and the demand curve. To show this, draw a demand curve on the same graph as the supply curve, making it downward-sloping, which represents a negative relationship between price and quantity demanded. The intersection of the two curves represents the equilibrium price of a Picasso Blue Period painting.
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c. Impact of increased demand for Picasso Blue Period paintings

: If rich art collectors decide that they must have Picasso Blue Period art for their collections, this will result in an increase in demand for these paintings. To show the impact of this on the market, draw a new demand curve on the graph with the original supply curve, making this new demand curve to the right of the initial demand curve. The new equilibrium point will be at the intersection of the supply curve and the new demand curve. This will result in a higher equilibrium price for Picasso's Blue Period paintings due to increased demand, but the quantity of paintings available in the market will remain unchanged at 1,000.

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