Applied Economic Principles - Essay Example

The nature of the collectible marketplace is a notable economic phenomenon. Generally, people usually buy things because they have an easily identifiable reason. For instance, people buy groceries because they have to eat, and they buy shampoo because they have to clean their hair. This is different for collectibles where the reason people purchase certain things is oftentimes mysterious. People note that they collect oftentimes for enjoyment (Yumeka). But still, why would one person be willing to pay thousands of dollars for a piece of cardboard with Mickey Mantle’s picture on it, but not be willing to pay 10 dollars for just a piece of cardboard? To a large degree, the economic analysis offers answers to these questions of collectible prices.

The overarching area of understanding collectibles is through Mankiw’s principles. One of Mankiw’s economic principles is that “Markets Are Usually a Good Way to Organize Economic Activity” (“Principles of Economics”). When considering collectible prices it’s clear they are a direct reflection of the market. As indicated above the reasons people desire to buy collectibles are out of a personal or sentimental connection to the object they are buying. For instance, it’s noted that people oftentimes baseball cards because they are seeking to reconnect with the memories they had during their childhood (Douglas). Certain types of cards then take on greater personal and sentimental value for people. A Mickey Mantle baseball card will carry with it a lot more sentimental value than a baseball card by a less popular player. According to Mankiw then, the invisible hand of the market will guide the price of this card about the amount the market is willing to pay for it.

Another important consideration is Mankiw’s principle that “People Respond to Incentives” (“Principles of Economics”). Within the collectible market, this is an important principle that influences price and collector involvement. While people oftentimes are drawn to buying collectibles because they have an interest in the specific item, there is also the hope for many people that the item they buy will increase in value. It’s noted that baseball cards have been considered a viable alternative to investing in stocks (Bullock). In these regards, the collectibles market is made complicated as people who buy the item out of personal interests and people who buy it out of economic interests clash and combine. Consider the nature of a very rare movie poster. While the poster may not be as attractive as a poster one could purchase from Wal-Mart, it still sells for a considerable amount more money. This is related to Mankiw’s principle of incentives in part because people recognize that some people desire the poster for a personal connection to it; however, they also recognize that since the poster is rare there is only a limited quantity. In this way, people are willing to buy the poster because they will be able to sell it to others at a premium. After all, the poster is not easily found.

In conclusion, this essay has examined the phenomenon of collectible sales in terms of two of Mankiw’s principles. In this context of understanding it’s demonstrated that the collectible market responds both to the principle of markets as organizing economic activity and the principle of people responding to incentives. In these regards, through the organizing factor of the market, the invisible hand drives up collectible prices based on several factors. People then are willing to purchase these items based on the incentive of sentimental identification and investment potential. Ultimately, this explains how a piece of cardboard has been able to sell for over $100,000.