Question

Explain briefly all the changes that occurred and highlight the benefits from b. trade. (5 points) Problem 2 (20 points) The cost of producing $160 per tonne. Nonetheless, the EU is the world's second-largest sugar exporter (exporting about 5 million tonnes per year), thanks to minimum prices for sugar combined with (export) subsidies to its sugar producers. Oxfam estimates that without the EU's subsidies, the world market price would be about $200/tonne. The EU consumes about 13 million tonnes of sugar per year, and produces about 18 million tonnes of sugar per year. [data adapted from Oxfam International one tonne of sugar in the EU is about $670; the world market price is only on the world: How EU sugar policies hurt poor countries. Oxfam Briefing (2003), Dumping Paper; 61, retrieved 10 May 2003,] 1. Illustrate the effects of the EU's sugar subsidies in a diagram of the EU sugar market. Clearly show the quantities mentioned above (make the axis on scale: on the vertical axis, use 1cm-$100/tonne, and on the horizontal axis, use 0.5cm-100 million tonnes). Identify the world prices with and without subsidy, the EU price (paid to producers and U 5

i just need help with the diagram

Answer 1

1000 T 900 Peace Deveased produun 600 Consumen Ihuaased Soo 400 300 200 100+ 2 3 6 7 29 11S 16 119 2A Cin mlbon

In the above figure we see the effect of removal of subsidy and it's consequences .

1) Initially when subsidy is provided , the domestic demand is 13 million and the exports amount to Rs . 5 million .

2) We can see that the domestic product are selling at $670 , this is because the subsidies will increase the domestic price otherwise all products will be exported .

3) After the removal of the subsidy , the demand for goods in the world market reduces to let's say 16 million . This is because of law of demand . Higher the demand lower the prices and vice versa .

4) Thus the producers will tend to sell the produced items in domestic market , increasing its quantity from 13 to let's say 14 million .

5) As a result of less world supply the world price rises to $200 and due to double effect of increased domestic demand and low world demand , the export reduces to $2million (16-14).