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Competitive Markets

Most commercial fish species in nearly every ocean and sea are being rapidly depleted. The world's fisherman & vessels represent twice as much fishing power as major stocks of fish can sustain.

Assume that ocean fishing resembles a competitive market in the following ways...there are no significant barriers to entry and there are enough individual fishermen so that none of them can affect the market price of fish.

a) Explain why competitive markets normally lead profit maximizing firms to make choices about resource use that lead to an "efficient" allocation of resources to the market.

b) If unregulated competitive markets promote "efficient" patterns of resource use, why has unregulated competition led to such serious overallocation of resources to fishing?

Solution Summary

A competitive market is illustrated here.

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