Evaluate critically (take a position whether the statement is correct, incorrect

Question

Evaluate critically (take a position whether the statement is correct, incorrect or partially correct and explain within the context of information obtained for this test): Local Lobstermen in Maine for their prize catches found out that new regulations limit the number of lobster traps and number of lobsters that can be taken out. They are upset because they fear that fewer lobsters mean less dollar value for their sales.
Evaluate critically (take a position whether the statement is correct, incorrect or partially correct and explain within the context of information obtained for this test): Local Lobstermen in Maine for their prize catches found out that new regulations limit the number of lobster traps and number of lobsters that can be taken out. They are upset because they fear that fewer lobsters mean less dollar value for their sales.
Evaluate critically (take a position whether the statement is correct, incorrect or partially correct and explain within the context of information obtained for this test): Local Lobstermen in Maine for their prize catches found out that new regulations limit the number of lobster traps and number of lobsters that can be taken out. They are upset because they fear that fewer lobsters mean less dollar value for their sales. Evaluate critically (take a position whether the statement is correct, incorrect or partially correct and explain within the context of information obtained for this test): Local Lobstermen in Maine for their prize catches found out that new regulations limit the number of lobster traps and number of lobsters that can be taken out. They are upset because they fear that fewer lobsters mean less dollar value for their sales.

Explanation / Answer

This statement can be partially correct.

The key factor here is to determine the price elasticity of demand for lobsters. Since lobsters are prize catches, they are valued in the markets and the price elasticity of demand is likely to be less than one.

In other words, a decline in supply of lobsters is likely to translate into higher prices and with demand being relatively inelastic, the decline in quantity will be offset by an increase in price of lobsters.

At the same time, given the limited information, it remains to be seen if the magnitude of decline can be offset by increase in prices. Therefore, dollar value of sales can potentially be higher or marginally lower depending on the restruction imposed (exact quantities) and the value of price elasticity of demand.

Also, the producer surplus might be restricted here as regulation is imposed. However, price increase will eat into the consumer surplus.

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