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Economics Extended Essay - To what extent has the market for paintings in South Bombay been affected by the economic slowdown?

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Introduction

To what extent has the market for paintings in South Bombay been affected by the economic slowdown? Abstract: This extended essay investigates the effects the slowdown of the economy of India on the art market in South Bombay. After the economic slowdown hit India, people would be careful with their money. They would reduce demand for goods that are not necessary or have a higher price than they are worth. The art market had seen a surge in demand before the slowdown. Therefore paintings fulfilled both the conditions above. Out of approximately 25 art galleries in South Bombay I went to 10 that filled, out my questionnaire. The questionnaire was used to see the effect of slowdown on the art market in South Bombay The market for contemporary artists, which had seen escalating prices because of rampant speculation, saw the exit of speculators. These speculators had been ruthlessly speculating on the price of paintings, which made prices rise rapidly. Once the slowdown set in, the art funds that were investing decided to pull out as they felt that demand from the genuine collectors would reduce and so investing in the contemporary art would not yield profits anymore. Therefore the contemporary market witnessed a 64% drop in demand from January- October 2008 to October- June 2009. The market for master artists too witnessed a drop in demand of 59%. This can be attributed to the fact that the genuine collectors who comprised a majority of the art market reduced their demand as they did not want to spend so much money on a painting as it had no use besides appreciation. Thus we can see that the slowdown has led to a steep drop in the demand for both master artists and contemporary artists albeit for different reasons. Word Count: 279 Table of Contents Introduction 4 Methodology 5 Overview Of The Art Market 6 Demand For Paintings Of Both Types Of Artists 8 Effect On Master Artists 10 Effect On Contemporary Artists 12 Economic ...read more.

Middle

Therefore the pull out of the speculators did not affect the demand for master artists as they did to contemporary artists. The data collected from the galleries showed that number of paintings of master artists bought by speculators fell from 162 to 41. Genuine collectors on the other hand bought 195 paintings between October 2008 and June 2009 while they bought 414 between January and October 2008. Thus we can clearly see that the drop in demand from speculators would not have affected the market for master artists as much as the drop in demand from genuine collectors. The table above shows that even during the boom time of the art market only a little less than half of all the paintings of master artists were sold. Therefore the quantity demanded for master artists was low even at first. Very few people can afford to buy a painting made by a master artist and thus very few paintings are sold even when there is a boom phase in the business cycle. Due to the slowdown, the collectors were reluctant to spend a large amount of money on a painting, as they have no use for it. Instead of spending the money on a painting, the collector would rather save it for harder times. Thus the demand for paintings of master artists is price elastic. It is not a good that needs to be purchased. One can wait for the price to change before he purchases the good. The effect of the slowdown on the market for paintings of master artists can be seen in the diagram below. The diagram shows how the demand for paintings of master artists has reduced. Note: The elasticity of both the demand curves has not been calculated. The demand curves were approximated using the data collected. The diagram clearly shows how the demand curve in the market has moved to the left from the purple line to the red line due to the economic slowdown as explained above. ...read more.

Conclusion

It could be that other galleries had different factors affecting them. I should have gone to other galleries instead of relying on one person to help me contact galleries. Another thing that I should have done was to get the sales figures for each month between January 2008 and June 2009 instead of dividing it into two 9-month periods. This would help me analyze the data further as it would tell me how exactly the speculators and collectors changed their demand and whether there were signs of a recovery of the market. The only evidence I had for the signs of a recovery was a few gallery owners telling me that the genuine collectors have started coming back into the market for contemporary art. Also I should have made a questionnaire for collectors and speculators to help me calculate the price elasticity of the paintings of the two types of artists. Appendix: Time Period Total Paintings Sold Bought By Investors Bought by Collectors January- October 2008 October 08 - June 2009 Time Period Average Price Per Painting Number Of Paintings Sold January-October 2008 October 08-June 2009 Time Period Number of paintings Displayed Number Of Paintings Sold January-October 2008 October 08-June 2009 Time Period Average Price Per Painting Number Of Paintings Sold January-October 2008 October 08-June 2009 Time Period Number of paintings Displayed Number Of Paintings Sold January-October 2008 October 08-June 2009 Time Period Total Paintings Sold Bought By Investors Bought by Collectors January- October 2008 October 08 - June 2009 What returns could investors expect on their investment on contemporary artists between January and October 2008? a. 0-5% b. 5-10% c. 10-15% d. 15% + What returns could investors expect on their investment on contemporary artists between October 2008 and June 2009? a. 0-5% b. 5-10% c. 10-15% d. 15% + What returns could investors expect on their investment on master artists between January and October 2008? a. 0-5% b. 5-10% c. 10-15% d. 15% + What returns could investors expect on their investment on master artists between October 2008 and June 2009? a. 0-5% b. 5-10% c. 10-15% d. ...read more.

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