Market Equilibrium of Sugar

Topics: Supply and demand, Economics, Economic equilibrium Pages: 3 (1037 words) Published: October 1, 2011
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 certain cases this sacrifices the quality and taste of the industrial companies’ products. Sugar comes in various grades and quality with household quality increasing the most. In this paper I will relate the following economic concepts: (a) law of demand, (b) determinants of demand, (c) law of supply, (d) determinants of supply, (e) shortages and surpluses, and market efficiency of sugar. The following paragraphs explain the different economic factors that affect the sugar market.

The volatility of sugar prices is caused by many factors: (a) population growth (b) economic growth, and increase in per capita income of households (Sariannidis, 2010, p. 1). Future expectation is also a demand determinant of sugar. Consumers demand for sugar is increasing because of expectations that prices of sugar will further increase. The law of demand clearly explains the price increase in sugar. “Law of demand is the inverse relationship between price and quantity demanded” (Keat & Young, 2009, p. 46). In a free market if there are more demand than quantity supplied the price increases. Developing nations such as China and India with huge populations have put extra demand for sugar at an all-time high. The citizens of these two countries have...
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