Bugshan1 Ahmed Bugshan ECO 2023 Stephen Poteet 2 November 2018 THE ECONOMICS OF THE FISHING MARKET Introduction Human beings in any sector have unlimited needs. For the needs to be satisfied, resources are required. Resources are limited hence it is not enough for all human needs to be satisfied. As a result, decisions must be made on what needs to be satisfied and which one should be left out (The Economist 2012). A priority list should be prepared and important needs should be placed on the top of the priority list. Those needs on the bottom of the priority list will be left out. The alternative forgone is the opportunity cost. Marginal analysis Marginal analysis entails the additional benefits and costs associated with a business or financial decision. In the fishing market, a consumer may analyze the benefit of buying an additional fish and the cost associated with the purchase. If the marginal benefit exceeds the marginal cost, the consumer will continue to buy additional fish until the marginal benefit is equal to the marginal cost. At that point, additional fish will have no additional benefit. Opportunity cost Opportunity cost can be defined as the alternative forgone in satisfying human needs. Due to the scarcity of resources, all human needs cannot be satisfied. Based on the same, Fish consumers have various needs to satisfy. Because they have limited money and their needs are unlimited, they must forego some needs in order to buy fish. For instance, they may forego other Bugshan2 protein-rich foods like eggs and beef in order to buy fish. In such case, eggs and meet will become an opportunity cost for fish. Demand and supply A marketplace entails buyers and sellers trading particular goods and services. In other words, demand and supply are paramount in ensuring that the marketplace is functional. Buyers buy the products while the seller supplies the same. Like any market, fishing market entails supply and demand for fish. The fishermen and other trading merchants supply fish while consumers act as buyers as they seek food. The demand and supply forces will determine the market prices. If consumers demand more fish, the prices will increase. As a result, suppliers will be attracted by high prices to supply more because high prices imply high profits (The Economist 2008). Likewise, fishermen will make a decision to increase the supply of fish based on the marginal analysis. If the marginal benefit of increasing fish supply is more than the marginal cost, it will be profitable and appropriate for the fishermen to increase the supply of fish. The benefit will be maximized when the marginal benefit is equal to the marginal cost. Marginal benefits and costs If the marginal benefit exceeds the marginal cost, the consumer will continue to buy additional fish until the marginal benefit is equal to the marginal cost. At that point, additional fish will have no additional benefit. If the marginal benefit of increasing fish supply is more than the marginal cost, it will be profitable and appropriate for the fishermen to increase the supply of fish. The benefit will be maximized when the marginal benefit is equal to the marginal cost. Market failures Market failure entails a situation where the allocation of goods and services in a free market is inefficient. As a result, net social welfare will be lost. In other words, the consumer Bugshan3 surplus and/or the producer surplus will be diminished. The four major causes of market failures are market control, public goods, externalities, and imperfect information (Levinson). As illustrated in figure 1, the black shaded triangle shows the welfare loss due to the negative externality. The marginal private Benefit (MBP) is more than the marginal social benefit (MSB). The resulting output (Q1) is more than the efficient output (Q*) meaning that the market has failed because the output is not efficient. Government intervention The government may intervene in the market to promote economic fairness through taxation, subsidies, price ceiling or price floor. The government can set the price of fish above or below the equilibrium price. When the government sets the price above the equilibrium price, it is called price floor. On the other hand, when the price sets the price below the equilibrium price, it is called a price ceiling (Mahrin). Therefore, the price floor will increase the price of fish while a price ceiling will decrease the price of fish. Sellers or fishermen will benefit from a price floor because the higher the price, the higher the profits. However, consumers of fish will lose because they will be forced to pay high prices. On the other hand, when the price ceiling is effected, consumers will benefit because they will pay low prices. When the prices decrease, the purchasing capability of consumers will increase (Mallick). However, the sellers of fish or fishermen will lose because their profits will diminish. The lower the prices, the lower the profits earned by the fishermen. The impact of the government intervention While controlling prices will benefit either consumers or producers, it is not advisable because it creates a deadweight loss which is the social welfare loss. It will create either a surplus Bugshan4 or a shortage in the marketplace. It makes demand and supply forces ineffective as a surplus or a shortage cannot be totally eliminated when the price ceiling is in place or a floor is set. Price floor As illustrated in figure 2, the price floor will increase the price from PE to PF. As a result, the quantity supplied (QS) will be more than the quantity demanded (QD). A surplus (QS-QD) will be created. The deadweight loss (DWL) will also be created). The blue triangle area represents the deadweight loss while the black triangle area represents the surplus. Price Ceiling As illustrated in figure 3, the price Ceiling will decrease the price from PE to PC. As a result, the quantity demanded (QD) will be more than the quantity supplied (QS). A shortage (QDQS) will be created. The deadweight loss (DWL) will also be created). The blue triangle area represents the deadweight loss while the green triangle area represents the surplus. Conclusion Opportunity cost, marginal analysis, demand and supply forces are all important is sustaining a market mechanism. Human beings and firms in any sector have unlimited needs. For the needs to be satisfied, resources are required. Resources are limited hence it is not for all human needs to be satisfied. As a result, decisions must be made on what needs to be satisfied and which one should be left out. The marginal analysis in terms of marginal cost and benefit will assist in decision making. Bugshan5 FIG 1: Market failure graph FIG 2: Price floor graph PRICE(P) SURPLUS S PF PRICE FLOOR PE DWL D 0 QD QE QS QUANTITY (Q) Bugshan6 Figure 3: Price Ceiling graph PRICE(P) S SHORTAGE PE DWL PC PRICE CEILING D 0 QS QE QD QUANTITY (Q) Bugshan7 Work cited "A rising tide." The Economist, 2008. https://www.economist.com/science-andtechnology/2008/09/18/a-rising-tide. Accessed 31 August 2018. "Home | Measuring the Effects of Catch Shares." Last modified 2017. https://www.catchshareindicators.org/home/. Accessed 3 1Augest 2018. "How to stop fishermen fishing." The Economist, 2012. https://www.economist.com/node/21548240/print. Accessed 31 August 2018. Cod is Dead. Directed by G A. Romero. 2018. United States: Netflix, Film. Environmental Defense Fund (EDF). "How catch shares work." Last modified 2018. https://www.edf.org/oceans/how-catch-shares-work-promising-solution. Accessed 31 August 2018. Leschin-Hoar, C. "Study: Program to Protect Fish Is Saving Fishermen's Lives, Too." The Salt: NPR, 2016. Levinson, Daryl J. "Market Failures and Failures of Markets". Virginia Law Review, vol 85, no. 8, 2014, p. 1745. JSTOR, doi:10.2307/1073937. Mahrin, Vasiliy. "Market Economy: The Need for Government Intervention". Economics, vol 3, no. 5, 2015, pp. 20-35. Infra-M Academic Publishing House, doi:10.12737/13590. Mallick, Naresh C. "Floor Price Analysis in Terms of Adjustment Weights". SSRN Electronic Journal, 2014. Elsevier BV, doi:10.2139/ssrn.2518234. 
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