The Alaskan Salmon-Fishing Industry
In the Wall Street Journal
for September 4, 1996, there is a story with the headline ``Fishermen in
Alaska, Awash in Salmon, Strive to Stay Afloat.'' There are striking
similarities between the events reported here and things that happened in our
fish market experiment.
The Supply of Salmon
According to the story, ``Alaska is awash in
salmon. Huge fish runs have been building here. Combined with the growing output
from sources like Chilean fish farms and Russian fishing fleets, they are
glutting the market and driving wholesale prices to record lows. ''
In the language of supply and demand curves, what does this story suggest has
happened in the salmon market? What explains the fall in wholesale prices?
Puzzles in Price, Quantity, and Profitability
Puzzle 1.
The story goes on to say that the price of salmon has fallen
to five cents a pound from a peak price of eighty cents a pound eight years ago.
The story says that five cents a pound is "less than the cost of catching them".
The story quotes a fisherman who says that he "figures he would have to catch
nearly a million pounds of salmon this summer to cover his boat payment and
expenses for his three-man crew." Implicitly, the story suggests that he is
unlikely to catch enough fish to be able to do so.
If, as the story suggests, the price of fish is less than the cost of
catching fish, why are fishermen still catching them? Hint: Which of the
fishermen's costs are variable and which are fixed (at least in the short run?
Puzzle 2.
In the story, the same fisherman who said he would need to
catch nearly a million pounds of salmon to cover his costs is quoted as saying:
"Its a weird problem. You love to catch fish, but the more you catch, the less
they're worth.''
What can this fisherman mean, and how can he say this when he also said he
needed to catch nearly a million pounds of fish in order to cover his costs.
Hint: Don't forget to distinguish between the size of his own catch and the size
of the total number of fish caught by all fishermen. Us e supply and demand
curves to show how it could be that the more fish that are caught the smaller
will be the total value.
Entry and Exit from the Industry
The story reports that a fourth to a
third of all of the loans made to fishermen by large lenders to fishermen to
finance their boats have been defaulted. (Although it is not stated, one would
guess that when a fisherman defaults on his loan, the lending institution will
repossess the boat and the fisherman will go out of business.)
The director of one fishermen's organization says that many of the group's
300 members have given up fishing for pinks (pink salmon) and "The ones that
haven't are fishing their brains out and going broke."