Briefs: The Economics of Pokemon®

Pokemon® is a game that I know little about. My six year old son, however knows a lot about it and talks frequently about the phenomenon of rare Pokemon® cards. He kept talking about how these rare cards cost a lot of money. I seized the opportunity to teach him his first lesson on economics: the basic lesson on price, using the principles of supply and demand. I first asked him he knew why these rare cards cost so much money (as if I expected him to say yes). He obviously said that he did not know why and so I proceeded to explain why.

I explained to him that the price of anything (in this case the price of rare Pokemon® cards) is controlled by the how much of it is available to buy (supply) and number of people who want to buy it (demand). This, of course assumes that we are operating in a free market economy. When there are a lot of people that want to buy something of which there is little supply of, the price will tend to increase and that something will eventually be considered to be “expensive”. Conversely, if there are a few people want something that there is a great abundance of, the price will decrease and that something will eventually be considered to be “inexpensive” or even “cheap”. Rare Pokemon® cards (and anything desired that is considered rare) fall into the category of something many people want of which there is little of. In this case desired rare items, people are willing to pay more for something that there is little supply of, because they know that they are competing with a lot of other people that want the same limited amount of the desired items. People who are selling the items know this and are incentivized to sell the items for an increased price. This is the reason why rare items are generally expensive in price. Consumers and their free choices determine the price of items.

It’s not too difficult to understand this idea and how the price of something is affected by supply and demand. This applies not only to rare Pokemon® cards, but also to virtually every good and service that is not regulated by governments and organizations. Even my six year old gets it now…I think.

Scarce Resources, which have Alternative Uses

One of the most fundamental axioms to understand about economics is that resources are scarce. This means that there is no infinite abundance of resources in any market. There is only a limited amount (no matter how large that amount is) of any resource used to manufacture all goods and provide all services. There is nothing that is infinitely available and ready for our disposal. This truth explains why people have to make economic decisions and make other arrangements in response to the scarcity of these resources. In addition to resources being scarce, they also have alternative uses, which adds to the need to make wise economic decisions, lest there be waste. These ideas of scarcity and alternative usage is why the great economist Thomas Sowell himself defines economics as the study of scarce resources, which have alternative uses.

When I talk about scarcity, it is in the attempt to explain that of all the abundant raw materials, manufactured products or natural resources that are available on a world-wide scale, there is still some finite amount that can be used up until there is no more. This is scarcity on a macro level (globally). To further the point, if scarcity exists on a macro level, then it obviously exists on a micro level (locally). Because there is only a limited amount of all resources, human beings are forced into making wise economic decisions, both in manufacturing (on the supply side) and in consumption (on the demand side).

Take the example of trees. On a world-wide scale, trees are very abundant. No time soon is the world going to run out tress as a natural resource. However, if man were to begin a large-scale, world-wide effort in manufacturing that required a lot of wood in the process, it may eventually dwindle the supply of trees to a point that would affect the global access to this natural resource. For the foreseeable future, that is not likely to happen. On the other hand, this is likely to happen on a local scale. While there may be an abundance of trees globally, there are places in the world where trees are very scarce.

Take another example. Let’s say there is a small town and in that small town there is a small forest of trees that is currently not in use, other than to be enjoyed by the community in the form of camping and other recreational uses. The mayor of that small town understands that these are the only trees that the town “owns” and that they need to be very prudent about how they “use” these trees. You can start to see how scarcity is already a factor to be reckoned with. The mayor and most of the citizens of that town know that these trees are important, even if nothing is done with them at all. They are already being used and the economic decision may very well be just to keep using them as they are currently being used.

Along comes a man who proposed that the town use some of the trees that it already owns to construct a pavilion to enhance the recreational enjoyment of the forest area. Now, the mayor is presented with another economic decision that he and the citizens will need make prudently, because there is trade-off to be considered in this situation. If the trees are used for the pavilion project, then there are less trees available for the original recreational purpose. And it is because of the fact that the trees are not infinitely available for their disposal that this decision is necessary. The trees are scarce, in the sense that if they keep continuing to use them up, there will no longer be any trees at all for their use (short of planting new trees for use decades later).

As you can image, there are a number of decisions that can be made here by the mayor and the citizens. They may decide to do nothing at all, because they enjoy the trees more than they would enjoy the pavilion without the missing trees, knowing that they do not have an infinite amount of trees at their disposal and preserving the trees seem more important to them. Another economic decision that they can make is to go forward with the construction, because the added recreational opportunity of the pavilion is enough to make up for the missing trees, understanding the idea of scarcity. And maybe another decision that they can make is to keep the trees that they have and build the pavilion anyways. This economic decision would require buying wood from other sources (another town, perhaps) and using funds that they would otherwise be used for other purposes.

No matter the decision, each one involves factoring in the fact that the resources in question are not infinite and therefore, requires wisdom to avoid waste. After all, if the town had an infinite number of trees at its disposal, then each decision could be made strictly on the basis of preference. This is hardly, if never the case because of the idea of scarcity.

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