Answer to Question #270042 in Microeconomics for Kerz

Question

Use demand and supply curves to illustrate and explain why rare items such as the Mona Lisa painting by Leonardo da Vinci are sold at such high prices

Answer 1

The Mona Lisa painting is a Veblen good. As such, an increase in price on the painting implies that its value has gone up, thus increasing its demand. The painting exhibits a price inelasticity of demand, meaning that the quantity demanded is barely affected by prices as it remains constant or increases.

For a Veblen good, demand increases as price increases since people perceive high prices with high status.