University Economics Assignment: Lobster Market and Coronavirus Impact

This economics assignment examines the Australian lobster market, specifically how the coronavirus pandemic affected it. The closure of China's market, a major importer of Australian lobsters, led to an increase in domestic supply, causing prices to fall. The assignment analyzes this shift using supply and demand curves, showing a new equilibrium point with lower prices. The assignment then explores the concept of price elasticity of demand, arguing that lobster demand is price inelastic. Despite falling prices, demand doesn't increase significantly, leading to a revenue decrease for the industry. The assignment uses figures to illustrate these concepts, showing the impact on revenue. The student's work provides a clear analysis of market dynamics under the influence of external factors.

Running head: PRINCIPLES OF ECONOMICS
Principles Of Economics
Name of the Student
Name of University
Course ID

1PRINCIPLES OF ECONOMICS
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question a....................................................................................................................................3
Question b....................................................................................................................................4
References........................................................................................................................................5

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Question 1
The coronavirus pandemic has badly hurt the market for lobsters in Australia. The Wester
Rock lobster constitutes one important portion of Australia’s commercial fishery. In the last few
years, China has become the main market of exported lobsters from Australia (fish.wa.gov.au
2015). However, because of the outbreak of coronavirus China’s market trading live animals has
been closed down. Because of decline in China’s demand there is an increase in supply of
lobsters in the domestic market of Australia. The excess supply if lobsters are forcing sellers to
sell lobsters at a lower price. The condition of lobsters’ market in Australia is explained with
help of the following figure.
Figure 1: Lobster market in Australia
In figure 1, supply and demand of lobsters in Australia are given by the respective linear
demand and supply curve of SS and DD. Equilibrium in the market corresponds to the point E.
price and quantity of lobster at equilibrium are given by P* and Q* respectively. Now, because
of closure of China’s market, there is a sudden increase in supply of lobsters for the domestic

3PRINCIPLES OF ECONOMICS
market. As stated in the article, tonnes of crustacean are now sitting in the holding tanks
(Mcphee 2020). There is an estimated stock of one month’s worth of lobster that will be sold out
of Western Australia. The increase in availability of lobster in the domestic market is shown
from rightward shift of the supply curve of lobsters. The new supply curve is S1S1. There is a
corresponding shift in the equilibrium in the market to E1. The excess supply condition leads to a
decline in price of lobsters from P* to P1. Because of the low prices fisherman and other staffs
involved in the industry are at a loss (Liveris 2020). Because of disruptions in the product flow
many staffs stand down indicating a loss of income not only for the fishers but also for everyone
relying on the industry for their income.
Question 2
Question a
Price elasticity of demand is a measure that shows how demand responses for a given
change in price. It expresses proportionate change in demand relative to proportionate change in
price. Demand is characterized as price elastic if demand changes by a larger proportion than
price. Demand is price inelastic when proportionate change in demand is less than proportionate
change in price. Price elasticity of demand for a good depends on different factors (Gans et al.
2018). In case of food items, taste and preferences play an important role in determining
elasticity of the product. People cannot change their food habit at a faster pace when price
changes. The demand for fisheries depend on preferences and food habit. Since, people are not
able to alter their preference much in response to price change demand is likely to be price
inelastic. Same is the case of lobster demand in Australia. Despite a fall in price of lobster
because of an excess supply demand cannot change much indicating a price inelastic demand for
lobsters.

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Question b
Excess supply of lobsters in the domestic market lowers the price of lobsters. Fall in price
of lobsters tend to increase its demand. However, since demand is relatively price inelastic, the
increase in demand given the decrease in price is proportionately less than price increase. This
will lead to an overall decrease in revenue in the industry (Kreps 2019). This is explained with
help of the following figure.
Figure 2: Price elasticity and revenue
Price of lobster in the market is initially given at P*. Equilibrium quantity of lobster in
the market is Q*. Revenue is therefore given as OP*EQ*. Now, because of the outbreak of
Coronavirus, price of lobsters falls to P1. Corresponding to the lower price, demand for lobsters
increase to Q1. Corresponding revenue to the industry is given as OP1E1Q1. As shown from the
figure, the proportionate increase in demand is less than the proportionate decrease in price. This
will lower revenue of the industry (OP1E1Q1 < OP*EQ*).

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References
fish.wa.gov.au 2015, An Analysis of the Demand for Western Rock Lobster, Fish.wa.gov.au,
viewed 4 April 2020, <http://www.fish.wa.gov.au/Documents/rock_lobster/wrl_notice_board/
analysis_of_the_demand_for_western_rock_lobster.pdf>.
Gans, J, King, S, Mankiw, N & Byford, M 2018, Principles of microeconomics, Cengage
Learning, South Melbourne.
Kreps, D 2019, Microeconomics for managers, Princeton University Press, Princeton.
Liveris, J 2020, Cheaper lobster on the menu as coronavirus causes domestic glut, ABC Rural,
viewed 4 April 2020, <https://www.abc.net.au/news/rural/2020-02-04/coronavirus-sees-cheap-
lobster-on-domestic-menu/11924186>.
Mcphee, E 2020, Lobster prices fall after Chinese market shuts down amid coronavirus, Mail
Online, viewed 4 April 2020, <https://www.dailymail.co.uk/news/article-7963755/Lobster-
prices-fall-Chinese-market-shuts-amid-coronavirus-epidemic.html>.