Decades of overfishing have dramatically reduced the world supply of cod (a type of whitefish). Farm-raised halibut is considered a close substitute for ocean-fished cod.
a. On the graph in Figure 6P-2, show the effect of overfishing cod on the market for farmed halibut.
b. A fast-food chain purchases whitefish for use in its Fish ’n’ Chips meals. Already hurt by the reduced supply of cod, the fast-food chain has lobbied aggressively for price controls on farmed halibut. As a result, Congress has considered imposing a price ceiling on halibut at the former equilibrium price—the price that prevailed before overfishing reduced the supply of cod. On your graph, show what will happen in the market for farmed halibut if Congress adopts the price control policy. Draw and label the price ceiling, quantity demanded, quantity supplied, and deadweight loss.