Case study 2.11 How prices can help
us discover the origins of creativity
Summary
This case study describes how information on prices at which goods or services trade can
be informative about their quality. This idea is applied to prices of art to suggest patterns
in how the creativity of artists has varied over their life cycles.
Suggested answers
1 Suppose we are examining the prices of some product of which more than one unit is
available – for example, we might be making a comparison between different vintages of
wine such as the 1990 and 2000 vintages of a Cabernet Sauvignon from the same
Barossa Valley winery. Can we interpret the prices at which these vintages sell at wine
auctions as conveying information about quality?
This will depend on the quantities of the 1990 and 2000 vintages that were supplied by
the winery. Suppose that exactly the same number of bottles of each vintage was
produced. Then supply of both vintages will be identical, and it can again be argued that
prices can only differ between the vintages if demand for the vintages differs – that is, if
consumers believe that the 1990 and 2000 vintages are of different quality. (This
assumes that we are considering the two vintages at the same point in time – so that it is
