Pirates and Tuna

Somali piracy 'reduces tuna haul' (link to BBC article)

Piracy off Somalia's coast is a cause of falls in tuna catches in the
Indian Ocean - one of the world's richest sources of the fish, experts say.

The head of the Indian Ocean Tuna Commission, Alejandro Anganuzzi, said
catches fell by about 30% last year, seriously affecting the industry. ...

...The pirates' biggest impact, however, is reduced supply, driving prices up,"
the head of the Seychelles Fisheries Authority, Rondolph Payet, told
Reuters.

How much would this affect prices and revenue of tuna sellers?


Firstly, this is a case of a change in a non-price factor of supply. The activity of the pirates have reduced supply of fishermen thus affecting the market for tuna. This is seen as a leftward shift in the supply curve. The result is that there is a shortage and this leads to upward pressure on the price of tuna. Equilibrium price of tuna thus increases and equilibrium quantity falls.


The first question is "by how much does price increase?" This is determined by the magnitude of the shift in the supply and secondly the elasticity of the demand curve.

The larger the magnitude of the shift in supply, the larger will be the increase in equilibrium price. Conversely, if the supply curve shifts by a bit, the price will only increase by a bit too. In this case, it is more likely that the supply curve has shifted by a large magnitude as "catches have fallen by 30%".

A more price inelastic demand curve will lead to a greater increase in the price of tuna while a more price elastic demand curve will lead to a relatively smaller increase in the price.

The second question is "how does this affect total revenue of the tuna sellers?". This again depends on the elasticity of the demand for the tuna market. If the PED is elastic, a rise in price will lead to a fall in total revenue. This is because the gain in revenue due to an increase in price is less than the loss in revenue due to a more than proportionate fall in quantity. If the PED is inelastic, the total revenue actually increases with an increase in prices.

So is the PED for the tuna market elastic or inelastic?