Microeconomics Gened Case Study
Microeconomics Gened Case Study
Microeconomics Gened Case Study
Ethan Peck
Fall 2021
Dr. Martinez
12/1/21
Without government intervention, the fishing market as a free market would eventually
create a shortage for itself. If the government doesn’t interfere, overfishing will occur causing
said shortage. In a free market fishing companies would have to control themselves to not
The marginal cost would increase with every fish they take out of the ocean to sell
because it would take away from their future profits. If the fishing company leaves that extra fish
in the sea it can go and reproduce which in turn creates more profit for them in the future. The
marginal benefit of catching that one more fish is most likely less than the marginal cost.
According to Forbes’ Two-Thirds Of The World’s Seafood Is Over-Fished -- Here’s How You
Can Help, “Two-thirds of the worlds fish are overfished and depleted … only a third of fisheries
are fished at levels that allow fish to repopulate.” Obviously this quote is talking about the
fishing market with government intervention; however it highlights how bad the market could be
without any intervention. Forbes’ Two-Thirds Of The World’s Seafood Is Over-Fished -- Here’s
How You Can Help also says that “Illegal, unreported, and unregulated fishing is estimated to
account for 20-30% of the global catch.” In a world with government intervention, a large
percentage of fish are already being left out of the total count on what is being taken out of the
ocean. In a world with no intervention this problem would most likely continue to grow. As a
planet we would not know how many fish are in our ocean at one time and eventually we could
harvest a large enough amount of fish to where they cannot reproduce and the supply will run
dry.
The benefits of not having any government intervention would be the market would be
flooded with supply, so much so the price of fish would fall and henceforth the demand would
rise. The cost of not having government intervention is the unavoidable shortage that is bound to
occur because there are no limits on how much fish a charter can bring in. A shortage would also
occur because the fishing charters are not being taxed per fish in a world with no government
intervention so their marginal benefit outweighs the marginal cost for every fish. Graph One is a
good representation of what the supply and demand graph would look like in a world with no
government intervention. P* shows the equilibrium price and Q* shows the equilibrium quantity.
These will only change if supply or demand changes however without government intervention
This fishing market can fail because of many reasons. As we have talked about in class,
market failure occurs when supply and demand is in disequilibrium due to distortion of the
market. The first thing that could cause market failure in this market is an externality. A possible
externality for this market could be sharks eating all the fish or people begin to hunt fish for sport
and then discard the dead fish instead of selling it. The second possible cause of market failure is
the use of fish as a public good. If more people began to purchase a boat and go out on the water
and fish for their own food this could lead to the potential downfall of the commercial fishing
industry. Fishing is seen as a public good however many people don’t do it because of the
opportunity cost and the risks associated with deep sea fishing. The last possible cause of market
failure would be if someone were to obtain a monopoly over the fishing industry. If this were to
happen the price of fish in the store can be set very high if the owner would like it to be. This
would lead to people consuming other foods than fish which would mean there is less demand
than supply leading to a market failure unless the owner of the monopoly lowers their prices. In
Graph 2 at the bottom of my paper the quantity supplied at Qs is much less than the quantity
demanded at Qs. At the point Qd quantity demanded is much less than the quantity supplied.
This means that at Qs there is a shortage and at Qd there is a surplus which means market failure
is occurring.
Catch shares is a term used in the fishing world, according to the National Oceanic and
Atmospheric Administration, “Catch shares is a general term associated with several fisheries
management strategies that dedicate a secure share of fish to individual fisherman, cooperatives,
or fishing communities for their exclusive use.” These catch shares are used as a limit for how
much fish a group or individual is allowed to remove from the ocean. The catch shares are
somewhat like a binding price floor which leaves over a surplus of fish in the ocean which
allows people to continue fishing season after season. Catch shares are used across the United
States to make sure that the cost of seafood stays relatively low. They are also used to improve
This form of government intervention corrects the market failure by limiting the amount
of fish that are allowed to be harvested by each person, company, or organization. Like I said
earlier in the paper this allows there to be a surplus of fish in the ocean which leads to fish being
sold year round instead of only once or twice a year. According to the Proceedings of the
National Academy of Sciences of the United States of America, “catch shares may decrease
increasing fishery value and decreasing costs, which may compensate for increased revenue
volatility if it does occur.” Catch shares are put into effect with the explicit goal of reducing
humanprogress.org, “The fishing industry is hurting, with pollution and rising temperatures
among the factors impacting the lives of commercial fishermen. In response, governments pay
over $22 billion a year in capacity-enhancing subsidies … These subsidies make it more
affordable to fish, but they also lead to the overexploitation of the fish population and make it
difficult for small fisheries to compete.” If the small fisheries cannot compete with large
corporations a monopoly will eventually occur which would be bad for our economy. Another
reason that small fisheries are not able to compete with large, commercial fishing operations is
because of the scarcity of fish. Fish is so widely demanded in the world that it makes it difficult
for small fisheries to make a profit when they have to compete with large fisheries for fish. The
fish market can be considered a rival market because when one firm takes fish out of the sea, it
prevents another firm from taking that fish and making a profit off of it. Fish as a good are
considered non-excludable because there are no possible restrictions that stop any one person or
firm from harvesting the fish from the sea. Humanprogress.org also said that “governments hand
out more than $35 billion each year to the commercial fishing industry. That is equal to 20
percent of the value of every commercial fish caught.” What this article is saying is that while
the current government intervention does help correct the market failure it is causing other
problems and is assisting in the formation of a monopoly in the fishing industry. The reason that
this market fails so often is because the market cannot achieve an efficient allocation of their
resources. This is because fish is a public good which leads to it being overexploited by everyone
The Tragedy of the Commons occurs in a market when every party in the market puts
aside everyone else's well being for their own benefit. Hypothetically in the fishing market an
example of this would be if everyone were to collect as many fish as they possibly could. This
would eventually lead to their being no more fish in the sea which would be bad (tragedy) for
everyone (commons). In Graph 3 the socially optimal quantity is larger than the quantity that is
currently being supplied. This is because in this example as more and more supply, or fish, are
taken the demand quickly stays the same causing deadweight loss to occur. This deadweight loss
can possibly be negated by the government intervening and enforcing rules on how many fish
people are allowed to take out of the sea. The Tragedy of the Commons phenomenon only
affects common resources as mentioned in the name. Common resources are described as
Catch shares also have these benefits: they end overfishing, reduce waste and fish thrown
overboard, and it reduces “ghost fishing”. According to edf.org, “Commercial fisherman voted to
switch to catch shares in the Gulf red snapper fishery in 2007. Since then, there’s been 100%
compliance with catch limits, which has helped the red snapper population rebound.” Ghost
fishing has also seen a drastic decrease. Ghost fishing is a term used to talk about the amount of
fish that die in gear that gets lost or broken. Edf.org says that, “In the Alaska halibut fishery,
“ghost fishing was reduced by 80% in the first year under catch shares from 1,289,000 pounds in
1994 to 257,000 pounds in 1995.” This is because the catch share allows the fishermen to
This paper shows both the cost and benefits of government intervention in the fishing
market. If the government stays completely removed from the fishing market a shortage of fish
will occur which will cause prices to skyrocket up. On the other hand, if the government
becomes too involved in the fishing market like mentioned earlier in the paper a monopoly will
have the ability to form because the smaller fisheries will not be able to compete with the large
corporations after the government subsidizes the fishing market. There is a perfect medium
somewhere that allows the government to subsidize the fishing market while preventing a
privatising the fishing market. This would mean that private companies would intervene into the
current fishing market and begin enforcing their own rules about harvesting fish from the ocean
and charging their own price. One possible problem with this solution however would be the
formation of a monopoly, or oligopoly. If there are only a few large firms that decide to enter an
oligopoly would already have been created because the fish (product) are only slightly
differentiated and they can all communicate and set a price that would benefit them all.
However, oligopolies are studied through game theory and every firm would want to make the
most profit. In order to do this though firms would have to accept missing out on some profit so
they can ensure they make the highest amount of profit that is realistically attainable.
Another idea that I think may work would be no longer having fish for sale at every
single grocery store and instead making them seem more “exclusive”. Perhaps if fish were to be
sold by grocery stores by order only so that way there is no fish just sitting out on the shelf with
shelf life and when not sold just tossed in the trash. This would most likely lead to a slight
increase in price however I believe this would stop the price of fish from fluctuating. In a perfect
world this way of selling fish would leave more fish in the sea because fishing companies would
not have an incentive to harvest large amounts of fish to sell them to grocery stores across the
country, instead they would just wait for grocery stores or restaurants to order a certain kind and
amount of fish. In turn the price for fish would stay relatively the same because there should
always be fish in the sea that are able to be harvested. One issue with this idea is that there would
most likely be significantly large shipping costs. This is because instead of sending large
quantities of fish to the stores like they do now, the fishing companies would instead send
multiple smaller orders of fish. Another possible problem with this idea would be people just
ordering very large amounts of fish and turning around and reselling them; however if this idea
were to be adapted I would suggest to the fishing companies putting limits on how much fish
As I said at the very beginning of this paper in a free market companies would have to
restrain themselves from overfishing so that their company can stay alive and keep making a
profit. However this is unlikely to happen because fish are a common resource and if there is no
government intervention in the market, the market itself would suffer from the Tragedy of the
Commons causing the fish to run out. Government intervention would prevent the market from
suffering from the Tragedy of the Commons however it would cause deadweight loss to occur
which would reduce consumer and producer surplus. Catch shares have the same effect as
government intervention in that they end overfishing and set limits on how many fish fishermen
are allowed to remove from the ocean. Towards the end of my paper I provided two different
solutions for the current state of the fishing economy. I do not know if there would be any
deadweight loss however I can confidently say that there would be a very very small chance of
Graph 2
“How Catch Shares Work.” Environmental Defense Fund. Accessed September 22, 2021.
http://www.edf.org/oceans/how-catch-shares-work-promising-solution
“A Rising Tide.” The Economist. The Economist Newspaper. Accessed September 22,
2021. http://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. http://www.economist.com/node/21548240/print
Vanasse, Bob 2018 Rotten Season 1, Episode 6 “Cod Is Dead.” Netflix. netflix.com
Chiang, Eric P. Microeconomics Principles for a Changing World. New York: Worth
Publishers Macmillan Learning, 2020.
“Northern Cod Fishery Could Provide 16x More Jobs and 5x More Economic Value.”
Oceana Canada, May 23, 2019. https://oceana.ca/en/blog/northern-cod-fishery-could-
provide-16x-more-jobs-and-5x-more-economic-value
Rowland, Michael Pellman. “Two-Thirds of the World's Seafood Is over-Fished -- Here's How
You Can Help.” Forbes. Forbes Magazine, July 25, 2017.
https://www.forbes.com/sites/michaelpellmanrowland/2017/07/24/seafood-sustainability-
facts/?sh=525b7a4f4bbf
Perry, Coty, and Coty Perry is Editor-in-Chief of Your Bass Guy. “The Negative Impact of
Government Subsidies on Small Fisheries and Fish Stock.” HumanProgress, May
21, 2021. https://www.humanprogress.org/the-negative-impact-of-government-
subsidies-on-small-fisheries-and-fish-stock/
Holland, Daniel S., Cameron Speir, Juan Agar, Scott Crosson, Geret DePiper, Stephen
Kasperski, Andrew W. Kitts, and Larry Perruso. “Impact of Catch Shares on
Diversification of Fishers' Income and Risk.” Proceedings of the National Academy
of Sciences. National Academy of Sciences, August 29, 2017.
https://www.pnas.org/content/114/35/9302#:~:text=While%20catch%20shares
%20may%20decrease,volatility%20if%20it%20does%20occur.