1. Explain, using supply and demand analysis, why the price of sugar has been increasing recently. Analyze the market for sugar using the information below The Market for Sugar The price of raw sugar recently reached its highest level since 1981 due to prob- lems with supply. Historically, raw sugar has traded at between 10 and 12 US cents per pound at the New York Board of Trade. But the price increased to over 18 cents last month. 2. Do you think the demand for sugar is elastic or inelastic? If the demand for sugar is inelastic, are sugar producers seeing higher or lower revenues as the price goes up? How are American sugar producers impacted (if at all) by the de- cline in Indian sugar production? Explain. 3. In what ways is the market for sugar used in confectionery related to the mar- ket for ethanol? Growing demand in Brazil for sugar to be turned into ethanol for fuel, coupled with a sharp fall in Indian production have both been factors in the price in- crease. Sugar production in India fell 45% year-on-year due to less rain in the monsoon season damaging a number of agricultural crops. 4. How might companies, such as Coca Cola, M&M Mars, and Nestlé react to an increase in the price of sugar? The London-based International Sugar Organization predicts that global con- sumption of sugar is likely to outstrip production by 9 million tons next year, forcing food companies and governments to dig into stockpiles. In the US, snack producers including Mars, Nestlé and Krispy Kreme Doughnuts put pressure on the US government to relax import controls, warning that otherwise they might run out of sugar. 5. Will the increase in the price of sugar be insignificant, since consumers do not buy a bag of sugar very often? Where else (or how) do you consume sugar, besides adding a teaspoon of sugar directly to your coffee or tea? What are sub- stitutes for sugar for consumers? What can food producers who use sugar use as a substitute? Explain how switching to substitute sweeteners affect the market for those sugar substitutes? End of document I Rectangular Snip Commentators predict that most shoppers will be unaffected because sugar is such a small part of a consumer's typical spending in a week that no one will no- tice an increase in price.