Question

Common fallacies Why are the following statements wrong? (a) There is no economic reason why a sketch that took Picasso one minute to draw should fetch £100 000. (b) Higher wages must raise the incentive to work.

Short answer

(a) Artistic value isn't solely based on creation time; it's influenced by artist reputation and demand. (b) Higher wages can lead to working less if people prioritize leisure.

Step-by-step solution

Identify the Fallacy in Statement (a)

The statement assumes that the value of a work of art is directly proportional to the time spent creating it. However, artistic value is subjective and can be influenced by the artist's reputation, rarity, and demand for their works. Picasso's sketches are valuable because of his unique status in the art world and the high demand for his art, not just the time taken to create it.

Identify the Fallacy in Statement (b)

The statement assumes a direct correlation between higher wages and increased work incentives. While higher wages can increase the incentive to work, this is not always the case due to the potential for income effects. As wages rise, some individuals might work less because they can maintain their standard of living with fewer hours, prioritizing leisure over additional work.

Key concepts

Value of Art

The statement that there is no economic reason for a quick sketch by Picasso to be worth a significant amount of money repeats a common misunderstanding. The value of art, particularly that which is highly subjective like paintings or sketches, doesn't strictly correlate with the time or materials used to create it. Rather, the value is often influenced by:

• Artist's Reputation: Renowned artists, like Picasso, command higher prices due to their established status and influence in the art world.
• Rarity: The scarcity of the artwork can drive up its value. Limited pieces by famous artists are highly sought after.
• Historical Significance: Artworks that hold historical or cultural importance can be valued higher.
• Emotional Connection: Purchasers may find personal or emotional value in a piece, increasing its worth beyond monetary terms.

Moreover, art investment considers these variables. If collectors believe the work will appreciate in value, they might pay more than the piece's intrinsic material cost. This demonstrates that art's worth goes beyond mere economics and ventures into personal and cultural significance.

Incentive to Work

Higher wages often appear as a clear motivator for people to work more. It seems logical; if you earn more per hour, you would want to work more hours to increase your income. However, the reality can be more nuanced. Several factors influence how wages affect work incentives:

• Diminishing Returns on Income: As people earn more, the additional money might have less impact on their overall happiness or utility.
• Leisure vs Work Balance: People may choose to work less as they earn more because they can afford more leisure time while maintaining their standard of living.
• Job Satisfaction: Job enjoyment or dissatisfaction can significantly affect work motivation, regardless of pay increase.

Therefore, the assumption that higher wages always boost work incentive overlooks the diverse motives behind why people work. It's important to consider personal priorities, job nature, and overall life satisfaction when evaluating work incentives.

Income Effect

When discussing wage increases and their impact on work habits, the income effect is an important concept to understand. Essentially, the income effect describes changes in consumer behavior when there's a change in their purchasing power, due to income changes. Here's how it applies to work:

• Higher Disposable Income: As wages increase, workers may have more disposable income, allowing them to afford more leisure time.
• Labor-Leisure Trade-off: With more income, some might prioritize time over additional earnings, reducing the hours of work.
• Marginal Utility of Income: As people reach higher income levels, the additional utility gained per dollar earned decreases, making free time more attractive.

The income effect highlights that increases in income don't always lead to more hours worked. People might choose to enjoy more time off or engage in other activities, reflecting a balance between work, leisure, and overall life goals.