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Economic News, Data and Analysis

The Great Pokémon Crash of 2000

Supply and Demand for the grade school set.

Over the recent holiday buying season, one of the best selling books
was The
Pokémon Collector’s Value Guide : Secondary Market Price Guide and
Collector Handbook
by the Checkerbee Publishing Staff.

The book provides an extensive guide to the wide array of Pokémon
cards (including English and Japanese versions as well as other sets) and
provides an estimated price in US dollars for many of the cards.

Unlike the majority of kids in this country and Japan, I know nothing
at all about Pokémon cards, the game, the TV shows, the movie, etc.
But I do know a bit about supply and demand – and I suspect that millions
of youngsters are getting a lesson in economics as they see the value of
their cards drop through the floor.

Why drop?

Before the holidays, parents rushed out to buy every scrap of Pokémon
merchandise they could get their hands on. All the cards that were purchased
were then wrapped and saved until it was time to open the packages on Christmas
morning (or on the other holidays of the season).

All of a sudden on December 26 there was a huge flood of Pokémon
to the “marketplace” – in this case the market, rather than on Wall Street,
is in the schools and on the playgrounds. In the language of economics
the “supply” of cards has increased suddenly. Economists would call this
a supply “shock” in the market for Pokémon cards.

Since there are now many more Pokémon cards we would expect the
price of each card to drop – at every price there are more cards that people
are trying to sell.

Could the price rise?

So the initial prediction might be a crash in the value of Pokémon
cards. But wait, we only talked about a supply shock – couldnít demand
be affected also? If every kid that received a Pokémon gift over
the holidays was already in the market, then probably not; but if a bunch
of kids got their first set of cards over the holidays, then we might have
a shift in demand as well.

The holiday season may have thus created a bunch of new “buyers” of
the cards. If this is indeed the case, then the price of cards might actually
rise!

Supply and Demand Curves

The above supply and demand effects can be illustrated with a tradition
supply and demand graph. Figure 1 shows the initial equilibrium (see box
below for definitions).

In the first case above, there was an expansion in the supply of cards
- so people are willing to sell more cards at any given price because they
have more of them lying around. This means that the supply curve (see box)
shifts outwards, leading to a lower equilibrium price and a higher equilibrium
quantity traded, see Figure 2.

In the second case, in addition to a shift in the supply curve, there are
more people in the market to buy cards. This would then shift the demand
curve out, since more people are willing to buy at any price. The equilibrium
quantity certainly rises, but the price may either rise or fall, see Figure
3.

Supply and Demand: Definitions

The quantity supplied is the amount of a good or service that
people are willing to sell.

The quantity demanded is the amount of a good or service that
people are willing to purchase.

The supply curve for a good is the amount that people are willing
to sell at each price – it is a relation between price and the quantity
supplied, holding other factors constant. As price rises, the quantity
that people are willing to sell rises (Law of Supply).

The demand curve for a good is the amount that people are willing
to buy at each price – it is a relation between price and the quantity
demanded, holding other factors constant. As price rises, the quantity
that people are willing to buy falls (Law of Demand).

Equilibrium is reached when the quantity supplied equals the
quantity demanded.

The Pokémon “Inflation”

I have talked about the price of Pokémon cards in dollar terms.
But most youngsters are dollar-poor, and Pokémon-rich; what if all
of the trading is done using only other Pokémon cards?

We need to make the distinction between the relative price of
the cards (how many Pikachus must be given up for one Squirtle?) and the
absolute
price of all of the cards in terms of dollars. If kids donít care about
the dollar value, they will not notice any change in the relative price
of the cards. But since the total supply went up, the price in dollar terms
should fall.

Another way of saying this is that the value of the cards in terms of
other, non-Pokémon, goods will fall. If kids use Pokémon
cards a money, the result is a Pokémon inflation!

(At this point, the astute adults should notice the parallel with inflation
and the supply of money.)

If indeed there has been a crash, hopefully the kids of the country
will have at least learned a valuable lesson in supply and demand.

Links From the Web

For more Supply and demand see Ooo-micro.

Pokémon.com.

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Filed under: Economics

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