A boy goes with his father to an auction one day. An irritating moth causes the boy to bid and purchase - far more than his allowance can stand, but alls well that ends well when he discovers that one of his inadvertent purchases is a painting by none other than Vincent Van Gogh!
What is an auction? How are prices determined in an auction?
An auction is a market where people in the audience bid on items offered for sale. Prices are determined by the interaction of supply (the item offered) and demand (the bids of consumers in the audience).
If the demand for an item is very high from bidders, what will happen to the price?
It will rise. If demand is very low, the price will tend to fall. In some auctions, the sellers demand a minimum price, and if the final auction price is not high enough, the item is withdrawn from sale.
What does a price reflect in terms of the economic concept of scarcity?
In any market, like this auction, prices reflect the relative scarcity of an item compared to other items. For example, a high price indicates that an item is very scarce compared to others items. A low price indicates that it is not very scarce compared to other items.
Why was the boy bidding on the many auction items?
He really wasn't! He was responding to an irritating moth and bought the items by mistake!
What price did the man with a mustache pay for the Van Gogh painting? Why did he pay so much?
$28,000,000. There was only one like it, and because Van Gogh is so famous, lots of people want to buy his paintings. In other words, the painting was very scarce, and the price reflected that.
What might cause the price of the Van Gogh painting to change in the future?
The supply of that particular painting can't change; it is unique. However, the demand can definitely change, and this will change the price. For example, Van Gogh could become more or less popular as an artist. Or, if there was a lot of inflation, people would buy more "hard" assets like art, gold, and jewels. This would cause the price of the painting to rise.
Have you ever been to an auction? Explain what happened.
Answers will vary.
Author: Nathan Zimelman
Reading Level: Age 6-9
Accelerated Reader Level/Points: .5