Case 4- Government InterventionThe price of raw sugar recently reached its highest level since 1981 due to problems withsupply. Historically, raw sugar has traded at between 10 and 12 US cents per pound at the NewYork Board of Trade. But the price increased to over 18 cents last month.Growing demand in Brazil for sugar to be turned into ethanol for fuel, coupled with a sharp fallin Indian production have both been factors in the price increase. Sugar production in India for2008-09 fell 45% year-on-year due to less rain in the monsoon season damaging a number ofagricultural crops.The London-based International Sugar Organisation predicts that global consumption of sugaris likely to outstrip production by 9m tonnes next year, forcing food companies andgovernments to dig into stockpiles. In the US, snack producers including Mars, Nestlé andKrispy Kreme Doughnuts put pressure on the US government to relax import controls, warningthat otherwise they might run out of sugar, Commentators predict that most shoppers will beunaffected because sugar is such a small part of a consumer's typical spending in a week thatno one will notice an increase in price.Questions1. Explain, using supply and demand analysis, why the price of sugar has been increasingrecently.2. Do you think a) the supply and b) the demand for sugar is price elastic or inelastic?Justify your choices and explain whether this means any given change in supply or demandwill have a bigger effect on the equilibrium price of quantity.3. How might companies such as Mars and Nestlé react to an increase in the price of sugar?

The supply of a good is a positive function of its price as the quantity supplied…

1. Explain, using supply and demand analysis, why the price of sugar has been increasing recently. 2. Do you think a) the supply and b) the demand for sugar is price elastic or inelastic? Justify your choices and explain whether this means any given change in supply or demand will have a bigger effect on the equilibrium price of quantity. 3. How might companies such as Mars and Nestlé react to an increase in the price of sugar?

1. Explain, using supply and demand analysis, why the price of sugar has been increasing recently. 2. Do you think a) the supply and b) the demand for sugar is price elastic or inelastic? Justify your choices and explain whether this means any given change in supply or demand will have a bigger effect on the equilibrium price of quantity. 3. How might companies such as Mars and Nestlé react to an increase in the price of sugar?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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