Economics Commentary Prac 3

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Economics Commentary – Number 2

Economics Commentary

Economics commentary number: Number 2

Title of extract: EU boosts sugar exports as prices soar

Source of extract: BBC News

Date of extract: 28/01/2010

Date of download: 12/03/2010

Word count: 745 words

Date the commentary was written: 13/03/2010

Section of the syllabus to which the commentary related sections: 2.1, 4.2

Candidate name: Xiangyu (Andy) Yang

Candidate number: ******


In the news article, the European Union (EU) claimed that European Beet farmers have surpluses. That suggested that the beet has been a good crop and supply of beet in European market is too much. Consequently, the domestic sugar producers in EU would produce much more sugar and increase the sugar supply in the domestic market. The large amount surpluses of sugar will be occurred. In Figure 1, the equilibrium quantity of sugar in European market should be Q, and market clearing price is P. Therefore when the European firms supply Q amount of beet, the demand will be satisfied with the both of price and quantity, and there will be no exceed beet supply.  However, when the sugar producers increase the supply of sugar, the supply curve will shift from S to S1, but the demand of sugar in domestic market will remain constantly. In this situation, the price of sugar in EU market will fall from P to P1. Although, the lower price will bring benefits to domestic consumers because this can truly decrease the budget on purchasing sugar but it shocks the sugar industry. Increased supply increases competitions between each producer and makes them hardly to sell their products. The producers would also make less profit because of the lower price and some of them cannot even compensate their cost of production. Therefore, a large amount of surplus will be in stock and surpluses would be formed.

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The article also suggested that a large part of sugar industry in Europe is receiving subsidy from EU government. This will lower the costs for domestic producers and make them earn more profit. It shows in Figure 2. Initially the domestic production of sugar is Q and domestic consumption is Q2 at a price of P. When the government subsidises domestic production at $(P1-P), domestic suppliers are able to increase supply from Q to Q1. This is shown by the shift of the domestic supply curve from S (Domestic) to S (Domestic + Subsidy). In this case, European domestic producers will gain ...

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