Market Equilibrium of Sugar

1047 Words Oct 12th, 2011 5 Pages
This paper relates to the concepts I learned from weeks one and two of my Economics class and how market forces affect the price of sugar. Characterized by volatile prices and widespread intervention sugar is one of the most massively traded agricultural commodities in the international and local markets (Sariannidis, 2010, p. 1). Sugar is one of the staple foods most people cannot live without. The reason I am using sugar as the subject of this paper is because I observed raw sugar has doubled its price over the past 18 months. The consumers’ demand for sugar has increased and the supply of sugar has decreased. The high-cost of sugar is forcing industrial companies to use other artificial substitute sweeteners in their products. In …show more content…
In figure 2 the blue line (S1) shows less supply of sugar coming into the marketplace. Figure 2 also shows that D2 (the demand curve) has increased, which in effect increases the price to P3. Q3 shows less quantity of sugar coming to the marketplace. P3 shows an increase in price because of increase in quantity demanded (Q3). P3/Q3 intersection is the new price equilibrium.

In figure 3 PH illustrates the price floor, it shows excess supply or less demand for sugar. PL shows a shortage of sugar in the marketplace or more demand for sugar.
Conclusion
In conclusion, I have shown that sugar has many contributing factors that lead to its increase in price. The increase demand for sugar by the emerging markets has increased the price for sugar. Other factors have decreased the quantity of sugar available on the open market. The sugar market is very responsive to supply or demand increases. The extra demand for sugar currently remains unmet. Various climate changes in the world, increases in oil prices, and sugar producing countries switching to ethanol production make it difficult to produce extra sugar to meet the current high-demand quickly. It will take farmers years to increase sugar production to meet this unmet need.

References
Keat, P. G. & Young, P. K. 2009. Managerial Economics. Economic Tools for Today’s Decision Makers, Sixth Edition
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