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."