Question

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

a. 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.

b. 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.

c. 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 are expected to consume about 11.1 million tons of sugar in 2018/19 (May to April), of which 1.3 m tons come from Mexico (from which it may be imported somewhat freely), and 1.2 m tons is imported from elsewhere, under strict quotas. The rest is produced domestically, with roughly equal amounts coming from sugar beet (55%) and from sugar cane (45%).]

d. 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.

e. “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.

Answer 1