GEA1_Case Study

Name: Serena Nigro

It demonstrates how markets work, uses marginal analysis in decision-making, and

displays scarcity. The Principles of Microeconomics describes a market as “an institution

that enables buyers and sellers to interact and transact with one another” (Chiang 2020).

The fishing market demonstrates the definition of a market as the sellers are able to create

a bond with their buyers and provide what is demanded. In order for a market to exist,

there must be a use of the price system, which is basically just exchange of money for a

good. In the fishing market, the fish are exchanged for fisher’s pay. The fishing market

proves how supply, demand, equilibrium, share catches, and monopolies effect free

markets. Additionally, the market exposes why there should not be government

intervention as it directly correlates to the negative consequences described through in

markets.

This type of fish market demonstrates the concept of supply, the maximum amount

of a product sellers is wanting to or able to sell at a specific price, and demand, the

willingness of the buyer to purchase a good or service at a specific price. With fish, there

is a very obvious and visible demonstration of supply and demand. As seen in Graph 1,

the variables regarding the fish effect the supply and demand curves. With a lack of

normal fish available for everyone, there is still a higher demand for fish as the same

amount of people want some, but the supply decreases. Another way of explaining the

supply and demand is when you go to the grocery story, you see various types of fish

replaced almost daily. The supply appears to be continuous based off how many people

are consuming the product, there being a whole type of restaurant surrounding the good,

and how everyone seems to love fishing. Unfortunately, this is not the case. Like most
goods, there is a level of scarcity that we are slowly reaching. The overharvesting of fish

for years now has caused companies to have to resort to farming fish since fewer wild

fish are available, displaying the idea of common resources and thus the tragedy of the

common. Common resources are ones that no one can claim. Fish cannot be claimed by

one group since they are such a wildly harvested good. The tragedy of the commons is a

direct result of people getting too greedy with common goods. It is described as when

someone neglects the well-being of society in pursuit of self-gain. In the case of the fishing

market, fishermen got a taste of the money they could bring in by catching and selling

fish. As a result, they would catch more fish than necessary, taking away from other

people. Previously, the fishing market relied on wild caught fish. Wild fish are rival and

non-excludable, meaning that when one person catches a fish, the number of readably

available fish goes down so that it is harder for others to catch. Since the fish are non-

excludable, anyone can access them.

Moreover, the over farming of fish results in negative externalities, such as a

change in the natural progression of sea life and later humans, as seen in Graph 2. When

too many fish are taken out of the life cycle, the cycle gets messed up ensuing a decrease

in overall well-being in the ocean. Humans also reap the negative externality

consequences of overfishing, such as sea communities which base their livelihoods on

catching fish. If there are no more fish left, these communities will fall to poverty. Richard

Write discusses the predicament saying, ‘"The world's oceans and rivers and lakes are

fished to their limit," says Richard Waite, a researcher with WRI. So, the aquaculture

industry has to step up, he says. "But if [aquaculture] were to more than double, and we

don't improve the sector's efficiency, its environmental impact will double as well.” (NPR
2014).’ The benefit of farming is that the supply in response to demand can be kept up,

as well as protecting the environment in the grand scheme of it. This situation exposes

the opportunity costs, which is the value of another alternative, that the buyer is willing to

pay. With other options of regular fresh fish or farmed fish, the buyer gets to decide what

they would prefer and therefore set the demand trend. Additionally, this plays into the idea

of surpluses, shortages, and equilibriums. When the buyer sets a higher demand trend,

sometimes the sellers are not prepared which creates a shortage of fish. A shortage is

when there is not enough fish to keep up with the buyers’ demands. Alternatively, when

there is a lower demand than expected, a surplus is created. A surplus is when there are

more fish than buyers purchase. When such event occurs, a deadweight loss is accrued

due to overfishing and underselling. Ideally a market equilibrium would occur when the

demand and supply statistics equal each other. In this case, there would not be an excess

or a shortage of fish.

This leads into the idea of marginal analysis in decision-making. In the case of

fishing markets, big companies must decide if they are going to switch their type of fishing

from normal fishing to farmed, despite the risks they most definitely would face. These

companies have to use marginal analysis to decide if it is worth the risk to make this

change. Additionally, fish markets without government intervention must weigh the pros

and cons of marginal benefits and marginal costs. The marginal cost refers to the cost of

building the farms for the fish as it relates to the seller, so it changes the marginal analysis.

With the change of type fishing available, the marginal benefit, being the maximum price

the consumer will pay for an additional good, also changes. The price for a normal type

of fish versus a fancy type of fish versus a farmed fish causes a different marginal benefit
that will very clearly affect the demand. In short, the resources available effects

everything. With a smaller amount of the normal fish available, there is a change in supply,

demand, marginal costs and benefits, scarcity, marginal analysis, every variable. When

one tiny variable is shifted, everything shifts. The fishing market is a good example of this,

and easily shows off the pros and cons of a market operating without government

intervention. A major pro is that the market gets to make decisions for themselves. They

get to regulate every aspect of the market, deciding how much to sell for, whether to make

the big decisions, if they should open more farms and how many, how to regulate the fish,

everything. On the other side, the lack of market intervention creates multiple cons. These

cons include the fact that there is no help when the markets fail, no one to stop

overfishing, there is a cost due to the free market, and there is a market failure.

Additionally, government intervention causes the social optimal cost and quantity to not

be met because of limits created.

Due to different types of goods, there are market failures and problems. The

market failures occur due to the lack of market control and government involvement.

Since the fishing market is a free market without government control, those running the

market are responsible for managing those failures and correcting them. These members

of the market would need to figure out how to correct the prices, provide enough supply

for the ever-changing demand, and ultimately ask for help from a larger party. For

example, one way of correcting a market failure is bringing in the government. The

government provides a quota in attempt to keep both the environment alive and keep the

market operating. With this quota, there is still overharvesting but in a lot shorter amount

of time. This possibly could help with the environment issue by providing a solid amount
of time that people are not fishing. In an Economist article, the author writes, ‘In a report

on this fishery, Dan Flavey, a fisherman himself, says some of his colleagues have even

pushed for the quota to be reduced by 40%. “Most fishermen will now support cuts in

quota because they feel guaranteed that in the future, when the stocks recover, they

would be the ones to benefit,” he says.’ (The Economist 2012). This idea of governmental

involvement for the sake of the fishing market has helped many aspects of the market.

One way of showing the improvements is through catch shares. Catch shares are

described in seven steps according to the Environmental Defense Fund. They state that

“scientists determine how many fish can be caught sustainably, managers set an overall

limit of fish that can be caught, the total allowable catch is then divided among fishmen,

each is allotted a percentage of the total (quota), captains can fish whenever they chose,

fishermen catch fewer discard fish, and as the fishery recovers, the overall catch limit

increases and the amount of fish each fisherman can catch” (Environmental Defense

Fund 2021). Some complain that catch shares are a downside of government

intervention. Since limits for how much fish they can catch exists, the fishermen must wait

a longer amount of time before they can catch an excess number of fish once their quota

is reached.

Additionally, catch shares have negative consequences as seen in the movie, “Cod

Is Dead” (Mussman 2018). One of these consequences is that they decrease the

profitability as there are short fishing seasons. Since there is a limited amount of time,

lots of fish is caught and attempted to be sold in a short window. Flooding the markets

causes a surplus and therefore a loss of profits. Also, big monopolies are granted more

catch share quotas than smaller groups. These monopolies then sell their shares at an
inflated rate to unsuspecting groups. By taking advantage of groups, there is a level of

inequality present. Sellers tend to lose out in the case of these shares, instead the overall

countries and buyers benefit (Sustainable Fisheries 2020). Catch shares play into the

concept of monopolists, and how they make prices and output decisions. Monopolies

produce a product with a unique good and no close substitutes. In this case, buyers will

be forced to go to a specific market to get the unique good. When the monopoly raises

its prices, the buyer would have no choice to either buy the product at an increased rate

or miss out entirely. Monopolists make their pricing decision based on maximizing profits.

Buyers complain that this is a prime example of a negativity of government intervention

since it led to monopolies and therefore decreased competition. Furthermore, this leads

into how market power is a problem. By intervening, the government ends up slowing

economic growth and therefore causing a disbalance in the economy. In order to help

stop monopolies from disrupting more of the market and equilibrium, a price floor can be

implemented. By welcoming a price floor, the current will be kept from rising too much.

As previously mentioned, monopiles often try to raise their prices in order to maximize

profit since there is a lack of competition. This will help an equilibrium remain so that

sellers stop losing out as badly as they do in the current market climate. By doing this,

society can go back to a more normal way of life. Hopefully this will cause better equality

levels to be present in the current market form. Monopolies

Although it is seemingly irritating now, the government intervention is helpful since

it corrects the market failure. By setting a quota, it allows fisheries to recover and produce

more fish, allowing the quotas to increase as years go on. Eventually, there will be no

need for the fish farms which are not environmentally friendly or good for the fish. This
will make the whole process more humane as well. The current level of governmental

intervention also helps balance out supply and demand. The supply and demand from

regular fish versus farmed fish yields very different results. The sheer number of people

in the population would cause a market failure without help from the governmental

intervention. There is also the luxury of government technology provided when you allow

them to involve themselves. One example of this is the satellite technology. An Economist

article writes, “In rich countries, satellite imagery will increasingly help, by making

monitoring cheaper and better. In many poor ones, devolution is making it easier to form

local organizations” (The Economist 2012). The opportunity to access these resources

helps the fishermen so where the fish are repopulating well and allow an increase in

quotas. Without this resource from the government, the fishermen could be fishing in low

population places without realizing it. The government’s involvement overall significantly

helps the population of fish, even if the fishermen and fish market get aggravated by it.

As discussed, the fishing market is a prime example of a free market without

government intervention. Marginal analysis is also shown to be important in market

decision making, as seen with the debate between farmed fish and fresh wild fish. The

type of fish is part of a larger issue, as discussed in the catch share predicament.

Through supply and demand graphs, we can also further see how catch shares impact

the fish market for the worst. They put the sellers in a bad position where they are

forced to either grow or join a monopoly if small. Additionally, market failures are easily

exposed through the lack of market control and government intervention. The argument

will always continue over if government intervention is good or not, but it is increasingly
shown how bad it is through monopolies and the lack of economic growth allowed in

markets.
Figure 1, Supply and Demand 2020

Graph 2, Negative Externalities 2020

Mussman, Jonathan. Rotten. Rotten - Cod Is Dead, 2018. Netflix.

“A Rising Tide.” The Economist. The Economist Newspaper, September 18, 2008.
https://www.economist.com/science-and-technology/2008/09/18/a-rising-tide.

“How to Stop Fishermen Fishing.” The Economist. The Economist Newspaper, February 25,
2012. https://www.economist.com/leaders/2012/02/25/how-to-stop-fishermen-fishing.

Singh, Maanvi. “Can Farmed Fish Feed the World without Destroying the Environment?” NPR.
NPR, June 6, 2014. https://www.npr.org/sections/thesalt/2014/06/06/319247280/can-
farmed-fish-feed-the-world-without-destroying-the-environment.

“How Catch Shares Work.” Environmental Defense Fund. Accessed September 16, 2021.
https://www.edf.org/oceans/how-catch-shares-work-promising-solution.

“See for Yourself How Catch Share Programs Affect Fish Stocks, Fishing Businesses, and Local
Communities.” Measuring the Effects of Catch Shares. Accessed September 16, 2021.
https://catchshareindicators.org/home/.

Chiang, Eric P. Microeconomics Principles for a Changing World. Macmillian Learning. New
York: Worth Publishers Macmillan Learning, 2020.
https://achieve.macmillanlearning.com/courses/onaf58/e-book.

“Negative Externalities: Third-Party Costs: Economics Online: Economics Online.” Economics

John Birchall, Graham Morris and Paul Clark. “Marketing.” Supply and Demand, 2020
http://www.sanandres.esc.edu.ar/secondary/Marketing/page_164.htm.

post, Archived. “Some Facts about Catch Shares.” Sustainable Fisheries UW, 14 Sept. 2020,
https://sustainablefisheries-uw.org/some-facts-about-catch-shares/.