EARLY FEEDBACK ASSIGNMENT – Version B

ASSIGNMENT DETAILS

Course: ECON1194 - Prices and Markets

1. This assignment carries 20% of total mark of the course. It covers topics 1.
2. Individual-written work: Word limits 500 words.
3. Soft-copy submission via Turn-it-in.
4. Due date: 4th November, 2017 (end of week 3).

STUDENTS’ INFORMATION & RESULTS

Class: Lecturer: Jain Upasana

Student Name: Bui Huu Huy

Student ID: s3651359

LECTURER’S FEEDBACK
 ASSIGNMENT QUESTION:
Access the following link for an article about the market of sugar in the world in 2017. Read the article carefully and
develop an economic analysis (comparative static approach) to predict the possible changes of the market equilibriums.

Businesstimes.com.sg (2017). Global sugar market firmly on path to surplus in 2017/18. [online] Available at:
http://www.businesstimes.com.sg/energy-commodities/global-sugar-market-firmly-on-path-to-surplus-in-201718

1. [15 marks] Apply the framework below to write about your economic analysis of the market adjustments.
Suppose there was initial market equilibrium at the beginning of the year.
i. [5 marks] Identify any possible shocks happening in the market. Among the shocks, classify which are the
determinants of demand for the product? Which are the determinants of supply?
ii. [10 marks] The shocks in the market may have resulted in simultaneous changes in demand and supply of the
product. Based on the information given in the article, evaluate how is the change in demand relatively
compared to the change in supply, and then analyse the effects of such changes to the price and quantity of the
product.
(Make sure you discuss whether there will be shortage/oversupply condition in the market after the changes in
demand and supply, and how the price and quantity of the product are adjusted to the new equilibrium).
2. [5 marks] Illustrate your analysis by a clearly labelled graph.

PLEASE WRITE YOUR ANSWER IN THE SPACES BELOW

1.
i.
According to BusinessTimes (2017), the sugar market worldwide would face a significant supply shock in
2017/2018 when the raw value of sugar would be expected to be an excess of 1.82 million tonnes. In addition,
international sugar was also predicted to be produced 6.9 percent more, which was 186.35 million tonnes.
BusinessTimes (2017) stated that sugar usage would boost up by 1.2 percent to 184.53 million tonnes, which
possibly would lead to a demand shock in the market.

The first determinant of sugar supply was the price of resource which was sugar cane. As mentioned by
BusinessTimes (2017), the worldwide sugar weather risk had been comforted and the weather was also
advantageous for the 2017-2018 sugar cane harvest, which would lower the price of sugarcane and lead to the
higher production of global sugar. Secondly, expectations of suppliers were also a significant determinant of
sugar supply. The suppliers predicted that the global sugar consumption in the future would possibly decline due
to the reduction of the demand for food and beverage, which had motivated them to reduce the production in the
future and focus on producing more sugar in the present (BusinessTimes 2017).
The main determinant of sugar demand was the expectations of buyers. As long as the future sugar supply would
decrease considerably due to the supplier's’ expectations, the consumer would tend to use more sugar in the
present which would drive to the growth of sugar demand.
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ii.
According to BusinessTimes (2017), the production of sugar was expected to rise up by 6.9% while the growth
of sugar consumption was only 1.2%, which would cause to the presumption that the supply curve shifts more
than the demand curve.
Starting at the equilibrium A, there are the equilibrium price (Po) and equilibrium quantity (Qo); quantity of
supply and demand are both equal to the equilibrium quantity (Qs=Qd=Qo).
Firstly, when the demand for sugar increases due to the expectations of buyers, the demand curve (D) shifts to
the right. As a result, at Po, the quantity of supply (Qs) is equal to the equilibrium quantity (Qo) while the
quantity of demand (Qd) increases to the new quantity (Q1).
As can be seen in the graph, (Q1) is significantly higher than the equilibrium quantity (Qo) and (Qs) is equal to
(Qo) then we can conclude that quantity of demand is now larger than the quantity of supply. Consequently,
there is a shortage of global sugar (from Qo to Q1) and the sugar supply deficit puts pressure on the price of
sugar to increase considerably from (Po) to (P1). Moreover, following the Law of Supply and Law of Demand,
the rise of sugar price boosts up the quantity of supply (Qs) and lowers the quantity of demand (Qd) until they
are equal to the new equilibrium quantity (Q2) and the equilibrium is now at B. As compared to the first
equilibrium (A), new price level (P1) of equilibrium B is higher than (Po) which means the sugar price increases.
In addition, the quantity of sugar also rises up because (Q2) is higher than (Qo).

Now start with the new equilibrium B, the new price level of sugar is (P1) and the new quantity is (Q2).
As the result of the decline of resource price and the expectation of the suppliers, the supply rises up and the
supply curve (S) shifts to the right. At (P1), while the quantity of demand (Qd) is equal to (Q2), the quantity of
supply (Qs) is now equal to (Q3). As shown in the graph, (Q3) is higher than (Q2) thus the quantity of supply
(Qs) is higher than the quantity of demand (Qd), then there is a surplus of global sugar supply (from Q2 to Q3).
As a consequence, the supply surplus makes pressure of price of sugar to decrease from (P1) to (P2). Following
the Law of Demand and Law of Supply, due to the decline of sugar price, the quantity of supply (Qs) decreases
and the quantity of demand (Qd) boosts up until they both are equal to the new equilibrium (Q4), the equilibrium
is now at C.
Comparing to the old equilibrium B, the price level (P2) is lower than (P1) then sugar price level reduces.
Moreover, the quantity of sugar boosts up significantly because (Q4) is higher than (Q2).
Comparing the equilibrium C with the first equilibrium A, the price level of sugar declines considerably because
(P2) is lower than (Po) and (Q4) is higher than (Qo) which leads to the rise of quantity of sugar.

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2.

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REFERENCE LIST
BusinessTimes 2017, ‘Global sugar market firmly on path to surplus in 2017/18’, The Business Times,
8th May, viewed 1st November 2017,
<http://www.businesstimes.com.sg/energy-commodities/global-sugar-market-firmly-on-path-to-surplus-
in-201718>.

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