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

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

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

2 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.

3 Demand Curve: Relationship between Price and Quantity Demanded (Q D ) holding other factors constant PriceQuantity Demanded ($ per lb)(Millions of lbs per year)

4 Price Quantity Demanded ($ per lb)(Millions of lbs per year) Demand for ABT, 1995 Quantity (millions of lbs per year) WTP 5 WTP 5 = max willingness to pay for the 5 th million lb (e.g., gourmet sushi restaurants). WTP 170 WTP 170, e.g., cat food producers D 1995

5 P ABT Q D ceribus paribus… need only be true on average ChangeExampleIllustratedTerminology in the P of the good itself P ABT Movement along the demand curve in quantity demanded Law of Demand KAY-tuhr-uhs PAR-uh-buhs

6 Change in Price of Good Itself D P1P1 P2P2 Q1Q1 Q2Q2 P ABT Q ABT P ABT causes Q D Illustrated by movement along D

7 Effects of Other Changes ChangeExampleIllustratedTerminology Any other factor Shift in Demand Demand for Atlantic Bluefin Tuna P Sake Sake & ABT are complements if P sake D ABT

8 Demand Shifts D1D1 P Q1Q1 Q2Q2 P ABT Q ABT D2D2 P Sake causes in D ABT, illustrated by a leftward shift in demand

9 Determinants of Demand Example 1. Price of P ABT in Q D 2. Prices of (a) Complements P Sake D ABT Good itself Related Goods

10 A California sushi chef discovered that the oily texture of avocado is a perfect substitute for toro (Wikipedia). Avocados (A) & ABT are complements if P A D ABT Avocado Rolls Toro Rolls Tuna Toro with Avocado Tower Avocados (A) & ABT are substitutes if P A D ABT Whether Avocados & ABT are substitutes or complements is an empirical issue.

11 Determinants of Demand Example 1. Price of P ABT in Q D 2. Prices of (a) Complements P Sake D ABT Good itself Related Goods (b) Substitutes P Avocados D ABT

12 Determinants of Demand Example 3. Income (Y) Normal Good: Inferior Good: Y D Vanity Plates Y D 68 Subaru Y D Vanity Plates are a normal good and 68 Subarus were an inferior good.

13 Determinants of Demand Example 4. Number of Buyers Aging of Boomers D Cremations Catholic Church 1963: sanctioned C 5. Tastes D Cremations 1997: C allowed at Catholic Mass

14 Supply Curve: Relationship between Price and Quantity Supplied (Q S ) holding other factors constant PriceQuantity Supplied ($ per lb)(Millions of lbs per year)

15 Price Quantity Supplied ($ per lb)(Millions of lbs per year) Supply of ABT, 1995 Quantity (millions of lbs per year) S 1995

16 Quantity (millions of lbs per year) S 1995 = min $ to get firms to = opp cost (resources) supply 80 million lbs of ABT of 80 th million lb of ABT

17 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

18 Quantity (millions of lbs per year) S 1995 Opp cost of catching ABT using dragger boats is higher than with tuna seiners Opp Cost 120 > Opp Cost 80 opp cost as Q As Q, P must to induce fishing boats pursuing ABT

19 Determinants of Supply Example 1. Price of P ABT in Q S Good itself 2. Price of Inputs P Gas in S ABT

20 Supply Shifts S1S1 P Q1Q1 Q2Q2 P ABT Q ABT S2S2 P Gas in supply, illustrated by a leftward shift 0 Leftward shift--moving towards zero at every price

21 Determinants of Supply Example 3. Technological Improvements Better handling purse-seine nets 4. Price of Complements in Production P Whalebone due to: Supply of in S ABT

22 Determinants of Supply Example 5. Price of Substitutes in Production Supply of P of

23 Quantity (millions of lbs per year) D 1995 S 1995 P e 95 Q e 95 Market for Atlantic Bluefin Tuna, 1995 E = Market Equilibrium no pressure to because buyers and sellers are

24 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.

25 Quantity (millions of lbs per year) D 1995 S 1995 = S 1998 P e 95 Q e 95 Market for Atlantic Bluefin Tuna, Event: D ABT by 60 million lbs per year Asian Crisis D P e 98 Q e 98

26 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.

27 D Jan06 D June07 Price ($ per lb) P Jan06 P June07 Q Jan06 Q June07 S June07 S Jan06 20% $130 Price ($ per lb) P Jan06 P June07 Q Jan06 Q June07 S June07 S Jan06 20% $13 Quantity D Jan06 D June07 Price ($ per lb) P Jan06 P June07 Q Jan06 Q June07 S June07 S Jan06 20% $130 Price ($ per lb) P Jan06 P June07 Q Jan06 Q June07 S June07 S Jan06 20% $13 Quantity 20% (a)(b) (c)(d) 2. The effect of these events on the market for bluefin tuna is best illustrated by D June07 D Jan06 D June07 D Jan06

28 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

29 3. The effect of these events on the market for avocadoes is best illustrated by D Jan06 Price P Jan06 P June07 Q Jan06 Q June07 S June07 S Jan06 Quantity (a) D Jan06 = D June07 Price P June07 P Jan06 Q June07 Q Jan06 S Jan06 S June07 Quantity (b) D Jan06 Price P Jan06 P June07 Q Jan06 Q June07 S June07 = S Jan06 Quantity (c) D June07 D Jan06 Price P Jan06 P June07 Q Jan06 Q June07 S Jan06 Quantity (d) D June07 S June07

30 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

31 S 1794 D 1794 D 1796 Shortage Buyers P LIMES Q LIMES T R = S 1796 Q 96 P 94 Q 94 QDQD P 96 Sellers T : quantity supplied R: quantity demanded Market for Limes, =Q S In 1795, the Royal Navy ordered sailors be given lime or lemon juice daily, causing them to be nicknamed limeys.

32 P < P e P = P e Shortage Q D = Q S Buyers Buyers & Sellers Bid up Price Q S & Q D

33 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.

34 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.

35 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 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).

36 Market for MOP Shells, P MOP Q MOP S 1913 D 1913 P 1913 Q 1913

37 Market for MOP Shells, P MOP Q MOP S 1913 D 1913 P 1913 Q 1913 P 1918 Q 1918 =S 1918 D 1918

38 Market for MOP Shells, P MOP Q MOP S 1913 D 1913 P 1913 Q 1913 P 1918 Q 1918 =S 1918 P D 1918 Adjustment Process: Immediately after D, P= P Shortage of A B arises

39 Market for MOP Shells, P MOP Q MOP S 1913 D 1913 P 1913 Q 1913 P 1918 Q 1918 =S 1918 P D 1918 Q 1918 Adjustment Process: Immediately after D, P= P Surplus of A B arises Q d at P = Q s at P A B P Q D & Q S until new equilibrium is reached

40 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

41 Market for Cremations Predicted Outcome D 2002 S 2002 S 2001 D 2001 Q 2002 Q 2001 QCQC PCPC P 2001 Δ PΔ Q ? GA law S C Scandal TSC D C


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