Fish stocks have fallen so low that some countries are considering a complete ban on fishing.
Read the following data.
‘…fish stocks are running low and politicians need to act now…’ said a recent headline. There was a time when fish was a cheap source of food, and regularly eaten as part of the 'national diet'. Politicians seem to have little answers - indeed, some argue that European Common Fisheries Policy has contributed to the problem rather than provide a solution, by over-generous subsidies. However, other economists explain the depletion of fish stocks as a market failure.
Economists argue that free markets do not always allocate scarce resources optimally, and running out of fish simply drives up price and encourages more fishing, rather than less.
Urban congestion is a similar problem that needs to be resolved. In the case of congestion, many economists argue that government should intervene through heavy regulation, such as banning cars from city centres, while other economists still believe that markets can solve the problem, but that governments should ‘manipulate market forces’ so that they can send out the right signals. Road pricing would be an example of ‘using the market’ to help solve the problem. The same logic can be applied to depletion of fish stocks - for example, banning the catching of certain types of fish, or subsidising fish farms which might ‘manipulate the market’ to encourage new entrants, or to reduce costs for existing fish farmers.
What is meant by ‘a socially optimal allocation of scarce resources’? (4)
Briefly contrast ‘manipulating market forces’ and ‘regulation’ as remedies for urban congestion. (4)
Explain the reasons for the depletion of fish stocks, from the economist’s perspective. (10)
With a diagram illustrate the concept of net welfare loss associated with over-fishing. (6)
Evaluate policies designed to reduce the depletion of fish stocks in the EU. (16)