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Econ Homework2

A rise in sugar prices can impact producers by either maintaining profit margins due to increased production costs or increasing profits if demand rises without changes in production costs. For consumers, sugar is a necessity, leading to inelastic demand; thus, price increases can significantly affect living standards, forcing consumers to sacrifice luxuries. Long-term price hikes may result in economic downturns, affecting employment in luxury industries while potentially increasing jobs in the sugar sector.

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5 views

Econ Homework2

A rise in sugar prices can impact producers by either maintaining profit margins due to increased production costs or increasing profits if demand rises without changes in production costs. For consumers, sugar is a necessity, leading to inelastic demand; thus, price increases can significantly affect living standards, forcing consumers to sacrifice luxuries. Long-term price hikes may result in economic downturns, affecting employment in luxury industries while potentially increasing jobs in the sugar sector.

Uploaded by

zsy1104537534
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Analyze the impact of a rise in sugar prices on

i. Producers of sugar
ii. Consumers of sugar

i)
For producers of sugar, a rise in sugar prices might be caused by different
factors, such as:
a) An increase in the cost of production.
b) An increase in the quantity demanded.
c) A decrease in the quantity supply.
d) Government policies.
If the increment of sugar prices is caused by a) and ceteris paribus, profit
margin of the firms will not have any changes as the increment of price will be
used to pay the increment in the cost of production.
If the increment of sugar prices is caused by b) and ceteris paribus, the firms
will have more profits as there are no changes in the cost of production and
more investors are entering this market.
If the increment of sugar prices is caused by c) and ceteris paribus, the firms
will have no changes in profits as the total values (due to human labor) of
sugar have no changes.
Government policies could bring both positive and negative effect on the
prices of sugar, in the case that we are discussing, the government might
have imposed a higher tax rate on sugar so causing the prices of sugar to
increase. The producers of sugar could not get any increment in profits as the
government will take the surplus.

ii)
Sugar is a one of the necessities that all human beings must consume for the
sake for survival. Therefore, the sugar prices are inelastic, meaning the
relative change in quantity demanded is less than the change in price of the
product.
An increase in the prices of sugar will do greater impacts on the quality of
living than any other products as we mentioned that sugar is a living
necessity. The consumers will forgo some of the luxuries to buy sugar.
If the prices of sugar skyrockets in long term, there might even cause an
economic slump as people who are hired in luxury industries might become
unemployed and the opportunity cost might increase since more resources
are shifting to sugar industry. More people (who are consumers of sugar) are
also employed in sugar industry.

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