Until about 2006, the European Union guaranteed a price of sugar for its farmers that was roughly double the world level. Using a well-labeled diagram of the market for sugar...

Until about 2006, the European Union guaranteed a price of sugar for its farmers that was roughly double the world level.

  1. Using a well-labeled diagram of the market for sugar within the EU, show the effect of this

    policy on the price of sugar within the EU, and the incomes of sugar-beet farmers.

  2. The EU then sold the “surplus” sugar on the world market. On a well-labeled diagram of the

    sugar market in the rest of the world, show the effect of these sales on the world price of sugar.

  3. The US has a strict import quota (i.e. limit) on sugar. What effect does this have on the price of

    sugar in the US? Explain, with the help of a diagram. [Background: Americans consumed about 10.7 million tons of sugar in FY2014 (i.e. Oct 2013-Sept 2014), of which 1.9 m tons came from Mexico (from which it may be imported freely), and 1.4 m tons was imported from elsewhere, under strict quotas. The rest was produced domestically, with roughly equal amounts coming from sugar beet and from sugar cane. ]

  4. Suppose that the US were to allow unimpeded imports of sugar from the rest of the world, where the cost of producing sugar is relatively low. Show the effect of this on the market for sugar in the U.S., noting any gains or losses for consumers and/or producers.

  5. “Lifesavers” (a type of candy) used to be made in Michigan but are now manufactured in Canada. Suggest a reason for why the factory moved. 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Until about 2006, the European Union guaranteed a price of sugar for its farmers that was roughly double the world level.

  1. Using a well-labeled diagram of the market for sugar within the EU, show the effect of this

policy on the price of sugar within the EU, and the incomes of sugar-beet farmers.

I cannot make diagrams for you to look at here, but I can tell you how to make your own diagrams. In each case, you will be drawing supply and demand curves. I am sure your text shows you how to do that. You can also look at this link to see a diagram with these curves.

What the EU was doing with this policy was creating a price floor. They were setting a minimum price above equilibrium and they did not let the price fall below that. To show this on a graph, draw a horizontal line across your supply and demand curves somewhere above the equilibrium (where the two curves intersect). You will then see the result of the price floor. You will see that producers will supply more sugar than they would at equilibrium and consumers will demand less. This means that there will be a surplus of sugar because of the price floor.

  1. The EU then sold the “surplus” sugar on the world market. On a well-labeled diagram of the

sugar market in the rest of the world, show the effect of these sales on the world price of sugar.

When the EU sold all of the surplus sugar on the world market, it caused supply to increase. This is shown by a movement of the supply curve to the right. When the supply of sugar increases (all other things being equal), the price of sugar will decline. Thus, the EU’s action depressed the price of sugar for producers around the world.

  1. The US has a strict import quota (i.e. limit) on sugar. What effect does this have on the price of

sugar in the US? Explain, with the help of a diagram.

A strict import quota on sugar reduces the supply of sugar. It makes it so that less sugar can reach the American market. A decrease in the supply of sugar is shown by a movement of the supply curve to the left. If the supply curve moves to the left, the price of the commodity goes up. Thus, by setting a quota on imports, the US increases the price that consumers in the US have to pay for sugar.

  1. Suppose that the US were to allow unimpeded imports of sugar from the rest of the world, where the cost of producing sugar is relatively low. Show the effect of this on the market for sugar in the U.S., noting any gains or losses for consumers and/or producers.

If the US were to remove the import quota on sugar, the effect would be the opposite of the effect in #3. In other words, removing the quota would cause the supply of sugar to increase. An increase in the supply of sugar causes prices to do down.

  1. “Lifesavers” (a type of candy) used to be made in Michigan but are now manufactured in Canada. Suggest a reason for why the factory moved

There are many possible reasons why the Lifesavers factory might have moved. However, the other parts of this question suggests that we should offer a reason that is based on the supply of sugar. Sugar is a major ingredient in Lifesavers. Because of the import quota, sugar is more expensive in the US than it would be in a country that had no quotas. The Lifesavers company might have moved its factory to Canada so it could have access to cheaper sugar, thus making its product less expensive.

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