# 42 Price elasticity

Seafood prices vary, often in unclear ways. Maybe a rare species doesn’t have much of a market because people prefer to eat what they know – what they know how to prepare and like. Or, the rarer a species gets, the higher price it fetches if demand keeps steady. Abalone and bluefin tuna might be examples. Demand for seafood can also impact supply where increased demand leads to higher prices, which in turn may drive more fishers to target the species in question, or *vice versa* increased supply may lead to lower landings prices, especially where processing capacity is a limiting factor.

So, landings prices are not constant, but may change due to demand and supply factors. How do we consider that in EwE? The starting point is the landings prices in the Ecopath input parameters. Almost all EwE applications have simply taken those landings prices as being constant, and evaluated management options based on that assumption (corresponding to the solid lines in Figure 1). But landings prices are not constant! Economists deal with that issue through what is called price elasticity^{[1]}.

For economists, price elasticity (*e _{p}*) is generally defined as,

[latex]e_p = \frac{dQ/Q}{dP/P}\tag{1}[/latex]

where *Q* is the quantity demanded and *P* is the price. So, price elasticity represents the ratio between how much demand changes and how much the price changes. If prices increase, demand will decrease is the general expectation for a good with price elasticity. If for instance a 10% increase in price leads to a 10% decrease in demand, the situation is called “unit elasticity”, and it results in revenue being constant (corresponding to the stippled lines in Figure 1).

**Figure 1. A. Two examples of price elasticity. The dotted line represents unit elasticity where an increase in landings of x% leads to a corresponding decrease in landing price of x%. The horizontal line represents a perfectly inelastic situation where price is independent of supply, i.e. the default assumption in EwE where price is independent of landings (if not including price elasticity). B. Revenue (total landing value) for the ****situation with unit elasticity (dotted line) and inelastic (straight line) where revenue is proportional to landings.**

The situation is a bit more complicated for capture fisheries where there often is a complex relationship between demand and supply – and for that matter with production capacity where more boats doesn’t automatically result in more supply. For “traditional” seafood species prices may be relatively stable as landings change, perhaps with demand increasing prices with low supply, and with dropping prices when processing capacity becomes a limiting factor. For less traditional seafood, which may be the rarer species that consumers are not used and willing to purchase, prices may be low with low supply and only increase if and when catches increase.

In EwE, we consider the complex pricing pattern through a price elasticity functionality in Ecosim. In Ecosim one can define the relationship between supply and resulting landing price. The supply may be for one or more functional groups caught by a one or more fishing gears, and the resulting landing price may then be changed proportionally for groups – gear combinations that are specified separately. So, in principle one could have that the supply of one species impacts the price of another. Take as a hypothetical example that increase landings of walleye pollock for surimi (imitation crab) production might impact the landing price for king crab.

The price elasticity functionality while defined in Ecosim can subsequently be used anywhere in EwE where landed value is calculated, e.g., in the value chain, policy optimization, or MSE.

For hands-on details of how price elasticity is implemented in EwE, please see the Anchovy Bay price elasticity tutorial and the EwE User Guide.

- For more about price elasticity, see, e.g., the open textbook Principles of Microeconomics by Emma Hutchinson, University of Victoria. ↵