Okay, so your tuna fish sandwich probably isn't worth a couple grand. It's most likely made with a type of tuna called albacore. But, on the docks in Tokyo different kind of tuna, related to the stuff in your sandwich, is sold for \$70,000 dollars a fish. The Japanese praise the bluefin tuna, or maguro, as a delicacy.

### STUDENTS WILL

• Explain that supply and demand are the factors that determine the market price of a good.
• Describe why some goods are more expensive than others.
• Graph supply and demand curves from data.

[Note to teacher: This lesson is intended to serve as a culminating activity for the investigation of supply and demand.]

### INTRODUCTION

Okay, so your tuna fish sandwich probably isn't worth a couple grand. It's most likely made with a type of tuna called albacore. But, on the docks in Tokyo different kind of tuna, related to the stuff in your sandwich, is sold for \$70,000 dollars a fish. The Japanese praise the blue fin tuna, or maguro, as a delicacy. To see what a maguro looks like and how it is eaten, visit Sushi FAQ- Maguro (Tuna) .

Is maguro made the way you would make tuna fish salad? If not, how is maguro served? [No, maguro is served raw in small slices. It can be eaten alone (sashimi), rolled with seaweed (teppamaki), or on rice (nigiri-zushi).]

There is another big difference between maguro and canned tuna--the price. In this EconomicsMinute, we are going figure out why blue fin tuna goes for tens of thousands of dollars, while a can of its cousin is available at the supermarket for \$1.99.

Two economic forces determine the market price of blue fin tuna: demand and supply. The interaction of supply and demand determine the price of almost all of the stuff you buy, from ice cream to basketballs.

Let's look at the concept, "quantity demanded." The quantity demanded is the amount of a good or service that consumers plan to buy during a given time period at a particular price. For example, if the price is \$2 for a can of tuna, the quantity demanded might be 1 million units. However, if the price is lowered to \$1.50 per can, then the quantity demanded would increase to maybe 1.5 million. At lower prices, quantity demanded increases. At higher prices, quantity demanded decreases. In this case, the quantity demanded of tuna would be the number of fish consumers plan to buy from each catch. This amount will change depending on the price of the blue fin. If Japanese consumers can buy a tuna for 12 yen (one U.S. dime), they will be dining on maguro every night. But, if the consumers have to pay 18.8 million yen (\$140,000 U.S. dollars), they'll pass on the tuna.

However, a lower price does not increase quantity demanded just because consumers are looking for a bargain. As more blue fins become available to consumers, the benefit that consumers get from one more fish decreases. This is the idea of diminishing marginal benefits.

Imagine you are a sushi lover. How much sushi would you buy at each given price? As you eat more and more tuna, the additional benefits you receive and your willingness to pay for one more fish decrease. The higher the quantity eaten, the less you are willing to pay for one more.

### PROCESS

Activity 1

Economists describe the relationship between quantity demanded and the price of a good as the demand for a good. A demand curve expresses this relationship. In order to generate your demand curve for maguro complete the following activity by entering the amount you would be willing to eat at each price. Use the arrows to navigate.

The line you have just generated represents the entire relationship between the quantity demanded and the price of a good. This line is the demand for bluefin tuna. A point on this line is a quantity demanded at a particular price. What is the general shape of a demand curve? [The demand curve is downward sloping.] Why is it shaped that way? [Consumers face diminishing marginal benefits.]

Demand is only half the story behind why you can't trade your tuna fish sandwich for a new car. The supply side of the market still needs to be explained. Similar to demand and quantity demanded, there is supply and quantity supplied. Quantity supplied is the amount of a good that a producer plans to sell in a given period at a particular price. In this case, the quantity supplied of tuna fish would be the number of fish a fisherman plans to sell from each boat load. This amount will change depending on the price he believes he can get for his catch. If the Japanese fisherman thinks he is going to get 12 yen (one U.S. dime) per fish, he isn't going to go out fishing. But, if the fisherman thinks he is going to get 9.4 million yen per fish (\$88,000 U.S. Dollars), he's already out on the ocean. However, a higher price does not increase quantity supplied just because the fisherman wants more money. As more bluefins are caught, the cost to the fisherman of catching one more fish increases. This is the idea of increasing marginal cost.

Imagine you are the fisherman. How would you set your price for fish? The price you sell your fish for depends on how much it costs you to catch it. As the quantity of bluefins on the market increases, the amount in the sea decreases and it is more expensive for you to find and catch a bluefin. Your marginal costs are increasing. Therefore, you will have to get more money at the dock to cover your costs.

Activity 2

Economists describe the relationship between quantity supplied and the price of a good as the supply of a good. A supply curve expresses this relationship. Generate your supply curve by completing the following activity by entering the amount you would be willing to sell at each price. Use the arrows to navigate.

The line you just generated represents the entire relationship between the quantity supplied and the price of a good. This line is the supply of bluefin tuna. A point on that line is a quantity supplied at a particular price. What is the general shape of a supply curve? [The supply curve is upward sloping.] Why is it shaped that way? [Because producers are facing increasing marginal costs.]

Now, to see how supply and demand come together to determine price, imagine that you could put the two graphs on top of each other. There would be some price and some quantity where the two curves intersect. These price and quantity numbers are the equilibrium price and the equilibrium quantity. A competitive open market moves towards an equilibrium price and equilibrium quantity that best suits that largest number of producers and consumers. At this equilibrium point, marginal benefits equal marginal costs.

But why does a bluefin tuna cost more than a car, while a can of tuna costs less than a magazine? The Sushi Homepage and the National Geographic Society's Xpeditions point out that generally the Japanese love sushi. They are willing to pay a higher price for sushi at every quantity demanded. Why would they be more willing to pay? To the sushi lover there are few substitute goods for maguro. A substitute is a good that can be used in place of another good. Conversely, you pay less for a can of tuna because there are many available substitutes. What are the substitutes for tuna fish? What would you eat if the price of tuna went up by \$5.00? [You could eat shrimp salad, chicken salad, salami, bologna, roast beef, yogurt, veggies, almost any other typical lunch food.] However, to the maguro lover, it is different; an increase in the price of the fish does not immediately make him or her turn to other fish.

Now let's look at the supply side of why a bluefin tuna is more expensive than a truck. To see what is happening to the physical supply of bluefin tuna, check out Bluefin Tuna Losing Battle for Survival .

1. What is happening to the supply of tuna?

[The number of bluefin tuna in the oceans is decreasing every year.]

2. Why is the supply of tuna decreasing?

[The supply is decreasing because fishermen are overfishing for bluefin tuna.]

3. What effect will this have on the price of tuna?

[There will be less tuna available on the market. Therefore, consumers will be willing to pay very high prices to get the fish that come in at the dock. The price of tuna will increase.]

### ASSESSMENT ACTIVITY

1. Why do people buy more maguro at lower prices?

[Consumers do not buy more maguro at lower prices only because they are looking for a bargain. When there is a lot of maguro available, consumers are less willing to pay for one more tuna because they are facing decreasing marginal benefits.]

2. Why do fishermen supply more maguro at a higher price?

[Fishermen do not only supply more tuna at a higher price because they want to get richer. As the number of tuna in the ocean decreases, the cost of catching one more tuna increases because suppliers face increasing marginal costs.]

3. In a competitive open market, what sets the price of bluefin?

[The interaction of supply and demand determine prices in an open market.]

4. What is a substitute good?

[A good that can be used in place of another good.]

5. Imagine that you had to eat an apple every hour on the hour for an entire week. By the end of the week, how would you feel about apples?  Why, in economic terms, would you feel this way?

[You would probably start to get sick of them.  You are facing decreasing marginal benefits.]

6. Why does it cost \$8.00 to go see a newly-released movie, but only \$2.00 to rent a video?

[There are fewer substitutes available for a movie than there are for a video rental.]

7. Why does bluefin tuna cost more than albacore tuna?

[Bluefin tuna costs than albacore tuna for a number of reasons. First, the demand for bluefin tuna is greater than the demand for albacore tuna. Sushi lovers are willing to pay a higher price for bluefin at every quantity supplied. The reason consumers are willing to pay more is that there are fewer substitutes for maguro than for albacore. In addition, the supply of tuna is decreasing, thus making the tuna that becomes available on the market more valuable.]

### EXTENSION ACTIVITY

MarcoPolo Project Geography Connection

Direct your students to Xpeditions , the National Geographic Society's MarcoPolo Project web site. Go to section V, and then to the Maguro section of X16: The Sushi Bar and read about how this fish is caught. Explore the other types of sushi available at the bar.

## EDUCATOR REVIEWS

• “I love the activity where supply and demand change each other. Great teaching tool.”

Mary Beth H., Gulf Breeze, FL   POSTED ON June 14, 2004

• “I love the way this lesson shows the information in both a chart and a graph.”

Tarah V., San Antonio, TX   POSTED ON January 25, 2005

• “I really like having the additional subject links and activities. This cross-curriculum method works so well in a lab setting. For example, I teach economics and work closely with the American History teachers. This lesson is wonderful for both subjects.”

Lynn C.   POSTED ON February 1, 2005

• “This is really useful and fun. I very much like the graphing tool.”

Susie Mayhew, Oxford, United Kingdom   POSTED ON March 22, 2005

• “60 Minutes has a very relevant segment on the current market situation for Maguro - it is archived (at least as of 1/14/08) at cbs.com.”

Arin Miler-Tait, Cleveland, OH   POSTED ON January 13, 2008