Question

Assume that the year is 2020, and you read the following brief article in the news:

September, 2020: Salmon fishermen in the Alaska fishery have been going through hard times for the past two years since the federal government approved the sale of genetically modified salmon. Grown in large tanks far from the ocean, these modified fish have genes that make them grow twice as fast as wild salmon, creating a fish product that can sell for much less than salmon wild-caught from Alaska. Until 2018, the U.S. market supply and demand for wild-caught Alaska salmon had reached a stable equilibrium. In the past two years since the genetically modified salmon have been on sale, sales of wild Alaska salmon have fallen dramatically. Many salmon fishermen complain that they are losing money each year. Some are reducing their fishing activities, staying in the harbor for weeks at a time. One fisherman said “After I pay for fuel and pay my crew, there’s not enough money to cover the payments on my boat. If this continues for another year or two, it will push me into bankruptcy.”

Instructions: Write a brief essay (up to 2 pages) analyzing the above situation using the tools of market supply and demand and cost analysis that we have developed in this course. Include supply/demand graphs of the overall market for wild salmon, plus firm-specific demand and firm-specific average cost and marginal cost curves for the individual firms (salmon fishermen) to illustrate your analysis. The goal is to rigorously explain the economics (not the science, ecology or other aspects) of the events that are discussed in the above article, carefully explaining the meaning of any graphs and/or calculations using the theory we developed in this course. Focus your supply/demand and cost analysis on the economic situation that the businesses of individual fishermen face, or are likely to face as a consequence of these developments. Assuming the wild salmon market is perfectly competitive, comment on what has happened and what is likely to happen in the future, applying the theory (including cost analysis) from our discussion of perfect competition. Mention short-run shutdown versus operation, and long-run entry and/or exit. Explain any shifts in supply and/or demand. Discuss why some fishermen continue to operate while others have stopped. If further assumptions are needed for your analysis beyond those stated or implied in the above excerpt, state them in your essay.

Answer 1