Maine Lobster Market Analysis: Supply, Demand, and Economic Factors

This report analyzes the lobster market, focusing on the impact of supply and demand on prices, as influenced by external economic factors. It examines how unusually low or large lobster harvests, and a weak or strong US economy, affect demand and supply. The analysis includes the effects of increased fishermen's costs, such as bait and fuel, on lobster prices. The report uses supply and demand diagrams to illustrate the shifts in supply and demand curves, explaining how these shifts lead to changes in equilibrium prices and quantities. The study references factors like the global financial crisis, which affected the export market, and the impact of lobster being a "celebratory item" on demand during economic downturns. The report concludes by discussing the implications of these factors for lobstermen and the overall lobster market, including supply and demand shocks.

Answer to Question: 1
When there is unusually low supply, supply goes down and supply curve shifts
leftward from S to S1 by keeping same demand D leading to supply shock which
pushes up equilibrium price from P* to Pa and lowers quantity from Q* to Qa, as
shown in Figure:1 (Edwards 2017). The opposite thing happens with an unusually
large lobster harvest. Supply increases and shifts rightward as shown in Figure: 2.
This leads to a fall in equilibrium price from P*($4 per pound) to Pa($3.89 per
pound) and raises the quantity from Q* to Qa due to excess of supply, leading to a
supply shock. Thus, sellers of Lobster has to sell more lobsters at low prices.
Moreover, global financial crisis affected the export market of marine lobsters as
Icelandic banks failed to maintain the seafood industry.
Figure:1 Figure:2

A weak economy is a situation where
economic growth is decreasing or slow due
to factors like the rise in unemployment rate,
fall in per capita income and consumption
(Mankiw 2016). This leads to demand
shock, which lowers the aggregate demand
(AD) for good. Lobster being an elastic good
is widely affected by the supply shock as
lobster consumption went down. Lobster is
considered as a celebratory item and in weak
economic condition people dined less which
affected the lobster market. A fall in AD
lowers output demanded from Y1 to Y2
level with a fall in price from P1 to P2, as
shown in Figure:3.
A strong economy means a good
economic performance which leads to
a positive demand shock where the
aggregate demand goes up, causing a
rise in price and output of lobster.
However, weak Us economy has hit
prices to the lowest level.
Figure:3
Answer to Question: 2

If the cost of fisherman’s bait and fuel goes up, the production cost will go up. In order to
balance the large lobster harvest and balance the production costs, fishermen charges a
high price of lobsters and increase its harvest from AS1 to AS2 (Varian 2014). Under
weak economy, banks are unable to finance the lobster market to export lobster and
gather huge revenues. Higher lobster price lowers the aggregate demand from AD1 to
AD2, that supplies the output that a low price level. Moreover, a fall in aggregate
demand for lobster has already has a negative impact on the lobster market causing a rise
in output from Y1 to Y2 and lowering the price level from P1 to P2. Thus, supply and
demand shock occurs that slows the lobster market and affects the fishermen.
Figure:4
Answer to Question: 3

References
Edwards, W.A., 2017. Principles of
Microeconomics.
Mankiw, N.G., 2016. Principles of
economics. Cengage Learning.
Varian, H.R., 2014. Intermediate
microeconomics with calculus: a modern
approach. WW Norton & Company.