RVHS_H1_ECONS_CSQ1

© RVHS 2015 8819/01 [Turn over H1 Prelims/Promos Case Study Suggested Answers ai) Identify the trend in sugar prices from 2011 to 2013. [1] Downward trend. aii) Explain the trend identified in part (i). [2]  The downward trend can be explained by the surplus, generated as a result of production being greater than consumption, in each year. b) Using a diag ram, explain how import tariffs as mentioned in Extract 1 would help the U.S. sugar producers. [3] Import tari ffs refer to a tax on imports. Figure 1 below illustrates the effects of a specific tariff on a particular good e.g. sugar. Suppose D domestic is the U.S. consumers’ demand curve for sugar while S domestic is the U.S. producers’ supply curve of sugar. Assume the world price is initially PW and the world supply curve for U.S. consumers is shown by Sworld. At PW, U.S. producers are only willing to supply Q 1 units of sugar. If a specific tariff is now imposed on imports, this means that S world will now shift upwards to S world + tariff. This al so implies that PW will rise to PW + t. At PW + t, U.S. producers are able to sell a larger quantity at a higher price, which increases the ir total revenue to 0PW+tBQ3 compared to 0PWAQ1 before the tariff is imposed. 0 G A Q4 Q3 Sworld + tariff PW + t Q2 Q1 Sworld PW Ddomestic Sdomestic Quantity Price Figure 1: Effects of Import Tariffs on U.S. sugar market B

c) With reference to Extract 2, explain whether corn syrup producers should be worried about their share of the sweetener market. [6] Thesis: Corn syrup producers should be worried about their share of the sweetener market Sugar and corn syrup are substitutes in consumption, as both of them can be used as sweetener in soda. Since the price of sugar fell, quantity demanded for sugar will increase which leads to a fa ll in the demand for corn syrup. That leads to a fall in equil ibrium quantity for corn syrup, which leads to a fall in their share of the sweetener market. Besides the fall in price of sugar, d emand for corn syrup has also fallen as consumer sentiment tur ned towards it because studies linking high fructose corn syrup with obesity turned off consumers, thus changing their taste and preferences. With a further fall in demand of corn syrup, their share of the sweetener market might fall too. Anti-thesis: Cor n syrup producers should not be worried about their share of the sweetener market Although the above points to a fall i