Pricey Pigeons

by Elaine Schwartz    •    Feb 3, 2012    •    661 Views

At the Paradise Pigeon auction in Belgium, a Dutch breeder sold a female pigeon to a Chinese shipbuilder for $328,000. Purchased to breed rather than race, Dolce Vita (the bird) will enable Hu Zhen Yu, also the owner of a pigeon racing group, to elevate China in a sport that had been dominated by Germany, Holland, Great Britain and Belgium.

With the capacity to fly more than 60 miles an hour and to cover 500 miles in one day, carrier pigeons are faster than any horse and rider. As a result, sort of like FedEx, they were used to fly stock prices between cities during the mid-19th century before the telegraph replaced them.

Our bottom line? Prices created by markets convey valuable information.

The Economic Lesson

A market is a process that determines the price and quantity of a good or a service. The demand schedule records the different amounts of a commodity, at different prices, that people are willing and able to buy. Correspondingly, the decisions of those who are willing and able to sell different quantities of the item at different prices are the supply side. When they interact, a market results.

The price of Dolce Vita was more than a number. It represented a wealth of facts about the carrier pigeon market. Because a market created the price, it was meaningful.

An Economic Question: Think of a $20 sweater and a $100 sweater. What information does each price convey?

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