Supply and Demand: The Market for Atlantic Bluefin Tuna (ABT) All Buyers and Sellers of ABT Tuna auction at the Tsukiji fish market.

Supply and Demand: The Market for Atlantic Bluefin Tuna (ABT)

All Buyers and Sellers of ABT

Tuna auction at the Tsukiji fish market.

Nicknamed “flying fish” because it travels in jets to Japan

Cold waters of North Atlantic create extra layers of fat giving BFT a “rich, silky flavor.”

Demand Curve: Relationship between Price and Quantity Demanded (QD) holding other factors constant

Price Quantity Demanded($ per lb) (Millions of lbs per year)

40

30

20

20

60

100

10 140

Price Quantity Demanded($ per lb) (Millions of lbs per year)

40 20

30 60

20 100

10 140

Demand for ABT, 1995

Quantity (millions of lbs per year)

WTP5

WTP5 = max willingness to pay for the 5th million lb (e.g., gourmet sushi restaurants).

WTP170

WTP170, e.g., cat food producers

D1995

PABT QD ceribus paribus… need only be true on average

Change Example Illustrated Terminology

in the P of the

good itself

PABT Movement along the demand curve

in “quantity

demanded”

Law of Demand

KAY-tuhr-uhs PAR-uh-buhs

Change in Price of Good Itself

D

P1

P2

Q1Q2

PABT

QABT

PABT causes QD

Illustrated by movement along D

Effects of Other Changes

Change Example Illustrated Terminology

Any other factor

Shift in Demand

“Demand” for Atlantic

Bluefin Tuna↑ PSake

Sake & ABT are complements if ↑Psake DABT

Demand Shifts

D1

P

Q1Q2

PABT

QABT

D2

PSake causes in DABT, illustrated by a leftward shift in demand

Determinants of Demand Example

1. Price of PABT in QD

2. Prices of

(a) Complements PSake DABT

Good itself

Related Goods

A California sushi chef discovered that the “oily texture of avocado” is a “perfect substitute for toro” (Wikipedia).

Avocados (A) & ABT are complements if ↑PA DABT

Avocado Rolls Toro Rolls Tuna Toro with Avocado Tower

Avocados (A) & ABT are substitutes if ↑PA ↑ DABT

Whether Avocados & ABT are substitutes or complements is an empirical issue.

Determinants of Demand Example

1. Price of PABT in QD

2. Prices of

(a) Complements PSake DABT

Good itself

Related Goods

(b) Substitutes PAvocados DABT

Determinants of Demand Example

3. Income (Y)

Normal Good:

Inferior Good: Y DVanity Plates

Y D68 Subaru

Y D

Y D

Vanity Plates are a normal good and 68 Subarus were an inferior good.

Determinants of Demand Example

4. Number of Buyers

Aging of Boomers DCremations

Catholic Church 1963: sanctioned C

5. Tastes DCremations

1997: C allowed at Catholic Mass

Supply Curve: Relationship between Price and Quantity Supplied (QS) holding other factors constant

Price Quantity Supplied($ per lb) (Millions of lbs per year)

5

10

20

70

80

100

30 120

Price Quantity Supplied($ per lb) (Millions of lbs per year)

5 70

10 80

20 100

30 120

Supply of ABT, 1995

Quantity (millions of lbs per year)

S1995

Quantity (millions of lbs per year)

S1995

= min $ to get firms to

= opp cost (resources)

supply 80 million lbs of ABT

of 80th million lb of ABT

“In ports like Gloucester and Seabrook, furious bidding wars broke out, as representatives of Tsukiji auction houses handed thousands in cash to stunned anglers for their hauls… Lobstermen began to put down their traps and take up rods and reels, chasing lucrative catches on slow-moving dragger boats ill prepared for the task.”

“The One That Almost Got Away,” Boston Magazine, May 2007

Lobster DraggerTuna (long net) Seiner

Quantity (millions of lbs per year)

S1995Opp cost of catching ABT using “dragger boats” is higher than with “tuna seiners”

Opp Cost120 >

Opp Cost80

opp cost as Q

As Q, P must to induce fishing boats pursuing ABT

Determinants of Supply Example

1. Price of PABT in QS Good itself

2. Price of Inputs

PGas in SABT

Supply Shifts

S1

P

Q1Q2

PABT

QABT

S2

PGas in supply , illustrated by a leftward shift

0

Leftward shift--moving towards zero at every price

Determinants of Supply Example

3. Technological Improvements

Better handling purse-seine nets

4. Price of Complements in Production

PWhalebone due

to:

Supply of

in SABT

Determinants of Supply Example

5. Price of Substitutes in Production

Supply ofP of

Quantity (millions of lbs per year)

D1995

S1995

Pe95

Qe95

Market for Atlantic Bluefin Tuna, 1995

E = Market Equilibriumno pressure to ∆ because buyers and sellers are

In 1998, the Japanese economy “tanked” due to the Asian financial crisis, reducing the amount that wholesalers were willing to pay for Atlantic bluefin tuna (Boston Business Journal, September 11, 1998). Illustrate the effect on the market for ABT, assuming that the demand for ABT fell by 60 million lbs due to the Asian financial crisis.

Quantity (millions of lbs per year)

D1995

S1995= S1998

Pe95

Qe95

Market for Atlantic Bluefin Tuna, 1995-1998

Event: DABT by 60 million lbs per year

Asian Crisis

D1998

60

Pe98

Qe98

1. Over the 18 months from January 2006 to June 2007, people in Russia, South Korea and China developed a taste for sushi and dozens of countries reduced their catches of bluefin tuna by 20 percent to stabilize the bluefin tuna population. These two events caused

a) an increase in the quantity of bluefin tuna demanded and a decrease in the quantity of bluefin tuna supplied.

b) an increase in the quantity of bluefin tuna demanded and a decrease in the supply of bluefin tuna.

c) an increase in the demand for bluefin tuna and a decrease in the quantity of bluefin tuna supplied.

d) an increase in the demand for bluefin tuna and a decrease in the supply of bluefin tuna.

DJan06

DJune07

Price ($ per lb)

PJan06

PJune07

QJan06QJune07

SJune07SJan06

20%

$130

Price ($ per lb)

PJan06

PJune07

QJan06QJune07

SJune07SJan06

20%

$13

Quantity Quantity

DJan06

DJune07

Price ($ per lb)

PJan06

PJune07

QJan06QJune07

SJune07SJan06

20%

$130

Price ($ per lb)

PJan06

PJune07

QJan06QJune07

SJune07SJan06

20%

$13

Quantity Quantity

20%

(a) (b)

(c) (d)

2. The effect of these events on the market for bluefin tuna is best illustrated by

DJune07

DJan06

DJune07

DJan06

“Since the start of last year, the average price of imported frozen northern and Pacific bluefin has risen more than a third, to $13 a pound, according to Japan's Fisheries Agency.”.

─“Japan Adapts to Tuna Shortage: Waiter, There's Deer in My Sushi,” The New York Times, June 25, 2007

3. The effect of these events on the market for avocadoes is best illustrated by

DJan06

Price

PJan06

PJune07

QJan06QJune07

SJune07SJan06

Quantity

(a)

DJan06 = DJune07

Price

PJune07

PJan06

QJune07QJan06

SJan06SJune07

Quantity

(b)

DJan06

Price

PJan06

PJune07

QJan06QJune07

SJune07= SJan06

Quantity

(c)

DJune07

DJan06

Price

PJan06

PJune07

QJan06QJune07

SJan06

Quantity

(d)

DJune07

SJune07

Loss of teeth

Pale skin

Sunken Eyes

Conquering Scurvy in the 18th Century

Connective tissue disease: body

becomes “unglued”

James Lind

In 1747, Lind ran an experiment on the sailors of the HMS Salisbury

Recovered Quickly

Limes

Sick Sailors

Other Common Treatments

Got Sicker

S1794D1794

D1796

Shortage

Buyers

PLIMES

QLIMES

T R

= S1796

Q96

P94

Q94 QD

P96

Sellers

T : quantity supplied

R: quantity demanded

Market for Limes, 1794 - 1796

=QS

In 1795, the Royal Navy ordered sailors be given lime or lemon juice daily, causing them to be nicknamed limeys.

P < Pe

P = Pe

Shortage

QD= QS

Bu

yers

Buyers & Sellers

Bid up Price QS &

QD

1. In 1747, the surgeon of the HMS Salisbury, James Lind, divided sailors sick with scurvy into groups, one of which was given limes to eat, another was given nutmeg and a third drank apple cider. Lind found that

a) only limes were effective at treating scurvy.

b) limes cured the disease but apple cider slightly improved the sailors’ health.

c) limes cured the disease but nutmeg slightly improved sailors’ health.

d) limes cured the disease but both apple cider and nutmeg slightly improved sailors’ health.

1. James Lind later

a) developed a method of preserving lime juice for use at sea.

b) discovered that scurvy was due to a deficiency of vitamin A, which is provided by limes.

c) died of scurvy on a long voyage that ran out of lime juice.

d) discovered that cholera was a waterborne disease.

Mother of Pearl Shells and World War I

In the early years of the 20th Century, the inner shell of sea oysters—called Mother-of-Pearl (MOP)—was used to create shirt buttons and to decorate jewelry boxes, revolvers and walking canes. Nearly all MOP was harvested off the coast of Australia by hundreds of oyster diving companies using boats called luggers.

Suppose the market for MOP reached long-run equilibrium in 1913.

In 1914, soldiers marched off to war confident that they would be home by Christmas. Few people anticipated the stalemate that would be created by trench warfare. As the war dragged on, fewer and fewer people wanted (and/or could afford) fancy buttons, walking sticks and jewelry boxes made of MOP. “By 1918, the price of mother-of-peral was so low that there seemed little point in sending the luggers out to sea” (The White Divers of Broome, p. 292).

Market for MOP Shells, 1913-1918

PMOP

QMOP

S1913

D1913

P1913

Q1913

Market for MOP Shells, 1913-1918

PMOP

QMOP

S1913

D1913

P1913

Q1913

P1918

Q1918

=S1918

D1918

Market for MOP Shells, 1913-1918

PMOP

QMOP

S1913

D1913

P1913

Q1913

P1918

Q1918

=S1918

P’

D1918

Adjustment Process:

Immediately after ↓D,

P= P’→ Shortage of

A B arises

Market for MOP Shells, 1913-1918

PMOP

QMOP

S1913

D1913

P1913

Q1913

P1918

Q1918

=S1918

P’

D1918

Q1918

Adjustment Process:

Immediately after ↓D,

P= P’→ Surplus of

A B arises

Qd at P’ = Qs at P’

A B

→ ↓P → ↑QD & ↓QS until new equilibrium

is reached

Tri-State Crematory (TSC) Scandal

Two Events in 2002:

GA “reformed” law by requiring crematories to hire embalmers

200 decomposing bodies discovered at TSC

“Government Six Feet Under”

Tennessee

Alabama

Market for Cremations 2001-2002

Predicted Outcome

D2002

S2002

S2001

D2001

Q2002 Q2001 QC

PC

P2001

Δ P Δ Q

?

GA law SC

ScandalTSC DC