Case study: Government intervention
The
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.
Growing
have both been factors in the price increase.
Sugar production in India for 2008-09 fell 45% year-on-year due to less rain in the monsoon season damaging a
number of agricultural crops.
The London-based International Sugar Organisation predicts that global consumption of sugar is likely to outstrip
production by 9m tonnes 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.
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 notice an increase in price.
Question:
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
price
(150 words)
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