Answer to Question #179090 in Microeconomics for Tayyaba

Question

If supply of art picture of ancient times decreases due to the shortage of artist 

in a shorter period of time what happened to art market if consumer has 

relatively elastic demand preferences for the art picture of ancient times but 

the supply is relatively inelastic. (support your answer with the help of 

graph). 

Answer 1

Art is a luxury product, and demand for it is price elastic. When demand for an item is high, items with a perfectly inelastic supply command a high price.

High-priced products, such as art, are also highly elastic because buyers are more likely to purchase at a lower price if prices fall. The unique existence of non-editioned artworks means that, regardless of collector demand, a dealer or auction house cannot make additional copies of that work—the work's rarity is a key driver of its price. This means that the only aspect that can change quickly is the market price.

The art market's peculiar capacity to self-regulate supply and demand is one reason for its tenacity. When the market is relatively liquid and the economy is doing well, art changes hands more frequently. When markets are unpredictable, the owners of valuable artworks, who are among the world's richest people, choose to hang on to their pieces of art until markets improve. Prices for works by established artists appear to remain relatively constant as a result of the decline in production, while prices for contemporary works with shorter histories are more volatile.