Question

Q11 Paintings by Pablo Picasso have significantly increased in value since the artist's death in 1973. Picasso's paintings are often sold through an auction house, allowing many potential buyers to bid on them. Here is the graph of Picasso's paintings Supply Demand C. a. Determine whether the elasticity of supply inelastic, unit elastic or inelastic b. Explain why that level of elasticity exists for the paintings Now assume that incomes INCREASE significantly. Illustrate the effect of the change incomes on your graph. Explain the effect of higher incomes on each of the following 1. The price of Picasso paintings which are a normal good 2. The quantity of Picasso paintings produced.

Answer 1

Answer a) The elasticity of suppy is Perfectly Inelasetic

Answer b) Painting of Picasso have a fixed supply. And since he is dead, the supply cannot increase. The great demad due to its quality, causes the price to sky rocket

Answer c1) The price would increase. Explanation - An increase in income, other things remaining same would meanan increase in the purchasing power of the individual. As a result the consumer can purchase more commodity. Therefore the price of painitings made by Picasso, a normal good will increase.

Answer c2) The quantity of Picasso painting would remain fixed. Explanation: Since Picasso is no more alive, even a very large increase in income, would not result in any new production of painting by Picasso