Info

intersection of supply curve Si and demand curve Da. The corresponding quantity of pink salmon—the type used mainly for canning—is represented as Q1 pounds.

Over the past few decades, supply and demand shifted in the market for pink salmon. On the supply side, improved technology in the form of larger, more efficient fishing boats greatly increased the catch and lowered the cost of obtaining it. Also, high profits at price P1 encouraged many new fishers to enter the industry. As a result of these changes, the supply of pink salmon greatly increased and the supply curve shifted to the right, as from S1 to S2 in Figure -7.

Over the same years, the demand for pink salmon decreased, as represented by the leftward shift from D1 to D2 in Figure -7. That decrease resulted from increases in consumer income and reductions in the price of substitute products. As buyers' incomes increased, they shifted demand away from canned fish and toward higher-quality fresh or frozen fish, including higher-quality species of salmon such as Atlantic, Chinook, and Coho salmon. Moreover, the emergence of fish farming, in which salmon are raised in net pens, lowered the prices of these substitute species. That, too, reduced the demand for pink salmon.

The decreased supply of, and demand for, pink salmon greatly reduced the price of pink salmon, as represented by the drop from P1 to P2 in Figure -7. Both the supply increase and the decrease helped reduce the equilibrium price. However, the equilibrium quantity of pink salmon increased, as represented by the move from Q1 to Q2. Both shifts of the curve reduced the equilibrium price, but equilibrium quantity increased because the increase in supply exceeded the decrease in demand.

Was this article helpful?

0 0

Post a comment