Presentation on theme: "Supply and Demand: The Market for Atlantic Bluefin Tuna (ABT)"— Presentation transcript:
1Supply and Demand: The Market for Atlantic Bluefin Tuna (ABT) All Buyers and Sellers of ABTTuna auction at the Tsukiji fish market.
2Cold waters of North Atlantic create extra layers of fat giving BFT a “rich, silky flavor.” Nicknamed “flying fish”because it travels in jets to Japan
3Demand Curve:Relationship between Price and Quantity Demanded (QD) holding other factors constantPriceQuantity Demanded($ per lb)(Millions of lbs per year)204060302010010140
4Demand for ABT, 1995PriceQuantity Demanded($ per lb)(Millions of lbs per year)4020306010010140WTP5 = max willingness to pay for the 5th million lb (e.g., gourmet sushi restaurants).WTP5D1995WTP170WTP170, e.g., cat food producersQuantity (millions of lbs per year)
5Law of DemandPABT QD ceribus paribus… need only be true on averageKAY-tuhr-uhs PAR-uh-buhsChangeExampleIllustratedTerminology in the P of the good itself PABTMovement along the demand curve in “quantity demanded”
6Change in Price of Good Itself PABT causes QDPABTIllustrated by movement along DP2P1DQ2Q1QABT
7Effects of Other Changes ExampleIllustratedTerminologyAny other factor “Demand” for Atlantic Bluefin TunaShift in Demand↑ PSakeSake & ABT are complements if↑Psake DABT
8Demand Shifts PABT QABT PSake causes in DABT, illustrated by a leftward shift in demandPD2D1Q2Q1QABT
9Determinants of Demand Example1. Price ofPABT in QDGood itself2. Prices ofRelated Goods(a) ComplementsPSake DABT
10A California sushi chef discovered that the “oily texture of avocado” is a “perfect substitute for toro” (Wikipedia).Tuna Toro withAvocado TowerAvocado Rolls Toro RollsAvocados (A) & ABT are substitutes if↑PA ↑ DABTAvocados (A) & ABT are complements if↑PA DABTWhether Avocados & ABT are substitutes or complements is an empirical issue.
12Determinants of Demand Example3. Income (Y)Normal Good:Y D Y DVanity PlatesInferior Good: Y DVanity Plates are a normal good and 68 Subarus were an inferior good. Y D68 Subaru
13Determinants of Demand ExampleNumberof BuyersAging of Boomers DCremationsCatholic Church1963: sanctioned C1997: C allowed atCatholic Mass5. Tastes DCremations
14Supply Curve:Relationship between Price and Quantity Supplied (QS) holding other factors constantPriceQuantity Supplied($ per lb)(Millions of lbs per year)70580102010030120
15Supply of ABT, 1995 S1995 Price Quantity Supplied ($ per lb) (Millions of lbs per year)57010802010030120S1995Quantity (millions of lbs per year)
16S1995 = min $ to get firms to supply 80 million lbs of ABT = opp cost (resources)of 80th million lb of ABTS1995Quantity (millions of lbs per year)
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 2007Tuna (long net) SeinerLobster Dragger
18S1995 opp cost as Q Opp Cost120 > Opp Cost80 Opp cost of catching ABT using “dragger boats” is higher than with “tuna seiners”Opp Cost120 >Opp Cost80opp cost as QAs Q, P must to induce fishing boats pursuing ABTQuantity (millions of lbs per year)
19Determinants of Supply Example1. Price of PABT in QSGood itself2. Price ofInputs PGas in SABT
20Supply Shifts , illustrated by a leftward shift S2 S1 PGas in supply, illustrated by aleftward shiftPABTS2S1PLeftward shift--moving towards zero at every priceQ2Q1QABT
21Determinants of Supply Better handling purse-seine nets Example3. TechnologicalImprovementsBetter handling purse-seine nets in SABT4. Price of Complementsin Production Supply ofPWhalebone due to:
22Determinants of Supply Example5. Price of Substitutesin Production Supply ofP of
23Market for Atlantic Bluefin Tuna, 1995 E = Market EquilibriumS1995no pressure to ∆ because buyers and sellers are Pe95D1995Qe95Quantity (millions of lbs per year)
24In 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.
25Market for Atlantic Bluefin Tuna, 1995-1998 DABT by 60 million lbs per yearEvent:Asian Crisis S1995= S199860Pe95Pe98D1998D1995Qe98Qe95Quantity (millions of lbs per year)
26Over 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 causedan increase in the quantity of bluefin tuna demanded and a decrease in the quantity of bluefin tuna supplied.an increase in the quantity of bluefin tuna demanded and a decrease in the supply of bluefin tuna.an increase in the demand for bluefin tuna and a decrease in the quantity of bluefin tuna supplied.an increase in the demand for bluefin tuna and a decrease in the supply of bluefin tuna.
272. The effect of these events on the market for bluefin tuna is best illustrated by Price($ per lb)Price($ per lb)(a)(b)SJune07SJan06SJune07SJan0620%20%PJune07PJune07$130$13PJan06PJan06DJune07DJune07DJan06DJan06QJune07QJan06QuantityQJune07QJan06QuantityPrice($ per lb)Price($ per lb)(c)SJan06(d)SJune07SJune07SJan0620%PJune07PJune07$130$13PJan06PJan06DJune07DJune0720%20%DJan06DJan06QJune07QJan06QuantityQJune07QJan06Quantity
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
293. The effect of these events on the market for avocadoes is best illustrated by PricePriceSJan06SJune07SJan06(a)SJune07(b)PJan06PJune07PJune07PJan06DJan06= DJune07DJan06QJan06QJune07QuantityQJune07QJan06QuantityPricePriceSJune07= SJan06(c)(d)SJan06SJune07PJune07PJune07DJune07PJan06PJan06DJune07DJan06DJan06QJune07QJan06QuantityQJune07QJan06Quantity
30Conquering Scurvy in the 18th Century Pale skinConquering Scurvy in the 18th CenturySunken EyesConnective tissue disease: body becomes “unglued”Loss of teethIn 1747, Lind ran an experiment on the sailors of the HMS SalisburySick SailorsJames LindLimesOther Common TreatmentsRecovered QuicklyGot Sicker
31Market for Limes, 1794 - 1796 PLIMES D1796 S1794 = S1796 D1794 P96 R T In 1795, the Royal Navy ordered sailors be given lime or lemon juice daily, causing them to be nicknamed limeys.PLIMESD1796S1794= S1796D1794T : quantity suppliedP96RTR: quantity demandedP94ShortageBuyersSellersQ94=QSQ96QDQLIMES
33In 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 thatonly limes were effective at treating scurvy.limes cured the disease but apple cider slightly improved the sailors’ health.limes cured the disease but nutmeg slightly improved sailors’ health.limes cured the disease but both apple cider and nutmeg slightly improved sailors’ health.
34James Lind laterdeveloped a method of preserving lime juice for use at sea.discovered that scurvy was due to a deficiency of vitamin A, which is provided by limes.died of scurvy on a long voyage that ran out of lime juice.discovered that cholera was a waterborne disease.
35Mother 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).
36Market for MOP Shells,PMOPS1913P1913D1913Q1913QMOP
37Market for MOP Shells,PMOPS1913=S1918P1913P1918D1913D1918Q1918Q1913QMOP
38→ Market for MOP Shells, 1913-1918 PMOP S1913 =S1918 P’ P1913 P1918 D1913D1918Q1918Q1913QMOPAdjustment Process:Immediately after ↓D,P= P’→Shortage ofA B arises
39↑QD & ↓QS until new equilibrium is reached Market for MOP Shells,PMOPS1913=S1918A BP’P1913P1918D1913D1918Q1918Q1918Q1913Qd at P’= Qs at P’QMOPAdjustment Process:Immediately after ↓D,P= P’→Surplus ofA B arises→→↓P↑QD & ↓QS until new equilibrium is reached
40Tri-State Crematory (TSC) Scandal Two Events in 2002:Tennessee200 decomposing bodies discovered at TSCAlabamaGA “reformed” law by requiring crematories to hire embalmers“Government Six Feet Under”
41Market for Cremations 2001-2002 Predicted OutcomePCΔ PΔ QS2002?S2001P2001D2001GA law SCD2002TSCDCScandalQ2002Q2001QC