Transcript Supply and Demand: The Market for Cremations

Supply and Demand:
The Market for Atlantic Bluefin Tuna (ABT)
All Buyers and Sellers of ABT
Tuna auction
at the Tsukiji
fish market.
Cold waters of North Atlantic
create extra layers of fat
giving BFT a “rich, silky
flavor.”
Nicknamed “flying fish” because it travels
in jets to Japan
Demand Curve: Relationship between Price and
Quantity Demanded (QD)
holding other factors constant
Price
Quantity Demanded
($ per lb) (Millions of lbs per year)
40
20
30
60
20
100
10
140
Demand for ABT, 1995
WTP5
Price
($ per lb)
Quantity Demanded
(Millions of lbs per year)
40
20
30
60
20
100
10
140
D1995
WTP5 = max
willingness to pay
for the 5th million lb
(e.g., gourmet sushi
restaurants).
WTP170
Quantity (millions of lbs per year)
WTP170, e.g., cat
food producers
Law of Demand
PABT   QD ceribus paribus… need only be
true on average
KAY-tuhr-uhs PAR-uh-buhs
Change
Example
 in the
P of the
good
itself
 PABT
Illustrated
Movement
along the
demand
curve
Terminology
 in
“quantity
demanded”
Change in Price of Good Itself
 PABT causes  QD
PABT
Illustrated by
movement along D
P2
P1
D
Q2
Q1
QABT
Effects of Other Changes
Change
Any
other
factor
Example
↑ PSake
Sake & ABT are
complements if
↑Psake   DABT
Illustrated
Terminology
Shift in
Demand
 “Demand”
for Atlantic
Bluefin Tuna
Demand Shifts
PABT
 PSake causes  in DABT,
illustrated by a leftward shift in
demand
P
D2
Q2
Q1
D1
QABT
Determinants
of Demand
1. Price of
Good itself
2. Prices of
Related Goods
(a) Complements
Example
PABT   in QD
PSake   DABT
A California sushi chef discovered that the “oily texture of
avocado” is a “perfect substitute for toro” (Wikipedia).
Avocado Rolls
Toro Rolls
Avocados (A) & ABT are
substitutes if
↑PA  ↑ DABT
Tuna Toro with
Avocado Tower
Avocados (A) & ABT
are complements if
↑PA   DABT
Whether Avocados & ABT are substitutes or
complements is an empirical issue.
Determinants
of Demand
Example
1. Price of
Good itself
2. Prices of
Related Goods
(a) Complements
PSake   DABT
(b) Substitutes
PAvocados   DABT
PABT   in QD
Determinants
of Demand
Example
3. Income (Y)
Normal Good:
Y   D
Inferior Good:
 Y   DVanity Plates
 Y  D
Vanity Plates are a normal
good and 68 Subarus were
an inferior good.
 Y   D68 Subaru
Determinants
of Demand Example
4. Number
of Buyers
Aging of Boomers
  DCremations
5. Tastes
Catholic Church
1963: sanctioned C
1997: C allowed at
Catholic Mass
  DCremations
Supply Curve: Relationship between Price and
Quantity Supplied (QS) holding
other factors constant
Price
Quantity Supplied
($ per lb) (Millions of lbs per year)
5
70
10
80
20
100
30
120
Supply of ABT, 1995
Price
($ per lb)
S1995
Quantity Supplied
(Millions of lbs per year)
5
70
10
80
20
100
30
120
Quantity (millions of lbs per year)
= min $ to get firms to
supply 80 million lbs of ABT
= opp cost (resources)
of 80th million lb of ABT
S1995
Quantity (millions of lbs per year)
“In ports like Gloucester and Seabrook, furious
bidding wars broke out, as representatives of Tsukiji
auction houses handed thousands in cash to stunned
anglers for their hauls… Lobstermen began to put
down their traps and take up rods and reels, chasing
lucrative catches on slow-moving dragger boats ill
prepared for the task.”
“The One That Almost Got Away,” Boston Magazine, May 2007
Tuna (long net) Seiner
Lobster Dragger
S1995
Opp cost of catching ABT
using “dragger boats” is
higher than with “tuna
seiners”
Opp Cost120 >
Opp Cost80
opp cost  as Q
Quantity (millions of lbs per year)
As Q, P must
 to induce 
fishing boats
pursuing ABT
Determinants
of Supply
Example
1. Price of
Good itself
 PABT   in QS
2. Price of
Inputs
 PGas   in SABT
Supply Shifts
 PGas   in supply, illustrated by a
PABT
leftward shift
S2
S1
P
0
Leftward shift--moving
towards zero at every
price
Q2
Q1
QABT
Determinants
of Supply
3. Technological
Improvements
Example
Better handling
  in SABT
purse-seine nets
4. Price of Complements
in Production
PWhalebone
due to:
  Supply of
Determinants
of Supply
Example
5. Price of Substitutes
in Production
 Supply of
P of

Market for Atlantic Bluefin Tuna, 1995
S1995
E = Market
Equilibrium
no pressure
to ∆ because
buyers and
sellers are 
Pe95
D1995
Qe95
Quantity (millions of lbs per year)
In 1998, the Japanese
economy “tanked” due to the
Asian financial crisis, reducing
the amount that wholesalers
were willing to pay for Atlantic
bluefin tuna (Boston Business
Journal, September 11, 1998).
Illustrate the effect on the
market for ABT, assuming that
the demand for ABT fell by 60
million lbs due to the Asian
financial crisis.
Market for Atlantic Bluefin Tuna, 1995-1998
Event: Asian Crisis  DABT by 60 million
lbs per year
S1995= S1998
Pe95
60
Pe98
D1998
Qe98 Qe95
D1995
Quantity (millions of lbs per year)
1. Over the 18 months from January 2006 to June 2007,
people in Russia, South Korea and China developed a taste
for sushi and dozens of countries reduced their catches of
bluefin tuna by 20 percent to stabilize the bluefin tuna
population. These two events caused
a) an increase in the quantity of bluefin tuna demanded and a
decrease in the quantity of bluefin tuna supplied.
b) an increase in the quantity of bluefin tuna demanded and a
decrease in the supply of bluefin tuna.
c) an increase in the demand for bluefin tuna and a decrease
in the quantity of bluefin tuna supplied.
d) an increase in the demand for bluefin tuna and a decrease
in the supply of bluefin tuna.
2. The effect of these events on the market for bluefin tuna is
best illustrated by
Price
(a)
($ per lb)
Price
SJune07
SJan06
20%
PJune07
(b)
($ per lb)
SJan06
20%
PJune07
$130
SJune07
$13
PJan06
PJan06
DJune07
DJune07
DJan06
QJune07 QJan06
DJan06
Quantity
Price
QJune07 QJan06
Quantity
Price
(c)
($ per lb)
SJune07
SJan06
PJune07
(d)
($ per lb)
SJan06
20%
PJune07
$130
SJune07
$13
PJan06
PJan06
20%
QJune07 QJan06
DJune07
DJan06
Quantity
DJune07
20%
QJune07 QJan06
DJan06
Quantity
“Since the start of last year, the average price of
imported frozen northern and Pacific bluefin has risen
more than a third, to $13 a pound, according to
Japan's Fisheries Agency.”.
─“Japan Adapts to Tuna Shortage: Waiter, There's Deer in My Sushi,” The New
York Times, June 25, 2007
3. The effect of these events on the market for avocadoes is best
illustrated by
Price
(a)
SJune07
SJan06
Price
(b)
PJune07
PJan06
PJan06
PJune07
DJan06 = DJune07
DJan06
Price
QJune07 QJan06
(c)
Quantity
Price
SJune07 = SJan06
SJune07
SJan06
QJan06 QJune07
Quantity
SJan06
(d)
SJune07
PJune07
PJune07
DJune07 P
Jan06
PJan06
DJune07
DJan06
QJune07 QJan06
Quantity
DJan06
QJune07 QJan06
Quantity
Pale skin
Conquering Scurvy in the
18th Century
Connective tissue
disease: body
becomes “unglued”
Sunken
Eyes
Loss of
teeth
In 1747, Lind ran an experiment on
the sailors of the HMS Salisbury
Sick Sailors
James Lind
Limes
Other Common Treatments
Recovered Quickly
Got Sicker
Market for Limes, 1794 - 1796
PLIMES
In 1795, the Royal Navy ordered sailors be given lime or
lemon juice daily, causing them to be nicknamed limeys.
D1796
S1794 = S1796
D1794
T :  quantity supplied
P96
T
R
R:  quantity demanded
P94
Shortage
Buyers
Sellers
Q94=QS
Q96 QD
QLIMES
P < Pe  Shortage 
Buyers

P = Pe  QD= QS  Buyers &
Sellers

Bid up
Price

QS &
QD
1. In 1747, the surgeon of the HMS Salisbury, James Lind,
divided sailors sick with scurvy into groups, one of which
was given limes to eat, another was given nutmeg and a
third drank apple cider. Lind found that
a) only limes were effective at treating scurvy.
b) limes cured the disease but apple cider slightly improved
the sailors’ health.
c) limes cured the disease but nutmeg slightly improved
sailors’ health.
d) limes cured the disease but both apple cider and nutmeg
slightly improved sailors’ health.
1. James Lind later
a) developed a method of preserving lime juice for use at
sea.
b) discovered that scurvy was due to a deficiency of vitamin
A, which is provided by limes.
c) died of scurvy on a long voyage that ran out of lime juice.
d) discovered that cholera was a waterborne disease.
Mother of Pearl Shells and World War I
In the early years of the 20th Century, the inner shell of sea oysters—
called Mother-of-Pearl (MOP)—was used to create shirt buttons and
to decorate jewelry boxes, revolvers and walking canes. Nearly all
MOP was harvested off the coast of Australia by hundreds of oyster
diving companies using boats called luggers.
Suppose the market for MOP reached long-run equilibrium in 1913.
In 1914, soldiers marched off to war confident that they would be home
by Christmas. Few people anticipated the stalemate that would be
created by trench warfare. As the war dragged on, fewer and fewer
people wanted (and/or could afford) fancy buttons, walking sticks and
jewelry boxes made of MOP. “By 1918, the price of mother-of-peral
was so low that there seemed little point in sending the luggers out to
sea” (The White Divers of Broome, p. 292).
Market for MOP Shells, 1913-1918
PMOP
S1913
P1913
D1913
Q1913
QMOP
Market for MOP Shells, 1913-1918
PMOP
S1913 =S1918
P1913
P1918
D1913
D1918
Q1918
Q1913
QMOP
Market for MOP Shells, 1913-1918
PMOP
S1913 =S1918
P’ P1913
P1918
D1913
D1918
Q1918
Adjustment
Process:
Immediately
after ↓D,
P= P’
→
Shortage of
A B arises
Q1913
QMOP
Market for MOP Shells, 1913-1918
PMOP
S1913 =S1918
A
P’ P1913
B
P1918
D1913
D1918
Qd at P’
Adjustment
Process:
Immediately
after ↓D,
P= P’
→
Q1918
Surplus of
A B arises
Q1913
→
↓P
= Qs at P’
→
QMOP
↑QD & ↓QS until
new equilibrium
is reached
Tri-State Crematory (TSC) Scandal
Two Events in 2002:
Alabama
200 decomposing
bodies discovered
at TSC
Tennessee
GA “reformed”
law by requiring
crematories to
hire embalmers
“Government Six Feet Under”
Market for Cremations 2001-2002
Predicted Outcome
PC
ΔP
?
S2002
S2001
P2001
ΔQ

D2001
D2002
GA law SC
TSC
Scandal DC
Q2002
Q2001
QC