Economics 9708/21 — October/November 2016
Cambridge AS Level · AS Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Methods of Government Intervention in Markets · Demand and Supply · Market Equilibrium and the Price Mechanism · Protectionism · International Trade and Comparative Advantage · Consumer and Producer Surplus · +5 more
Raw sugar trade deal
Mexico and the United States reach deal and avoid trade war
Mexico, the US and Canada are the three members of the North American Free Trade Agreement, which has given Mexico’s sugar producers free access to the US market since 2008. In March 2014, however, the association that represents the US sugar industry accused Mexican sugar producers of dumping cheap, subsidised sugar into the heavily protected US market and costing US sugar producers nearly US$1 billion in income in 2013–14.
The US government threatened to impose duties on imports of sugar from Mexico, and Mexico was proposing to impose retaliatory duties on some US products imported into Mexico. A deal has now been reached to avoid these protectionist measures and thus prevent a possible trade war.
The deal would set a minimum price for sugar to guard against undercutting or keeping US prices artificially low, and limit the amount of sugar that may enter the US market. Mexico could export 1.4 million tonnes of sugar to the US in 2014. That compares with an estimated 1.9 million tonnes for the 2013 crop year. Companies such as chocolate producers and soft drink manufacturers may also be relieved they will not have to pay higher prices for Mexican sugar now that the large duties have been avoided. The US is a net importer of sugar and Mexico is one of its largest suppliers.
Under the agreement Mexican producers agreed to sell at a minimum price of US$0.21 per pound weight (about US$0.46 per kilo) for raw sugar, much lower than would have applied if the import duties had been imposed on the sugar.
Source: Reuters, 27 October 2014
Table 1: Price of raw sugar 2011–2013
| World sugar price (US$ per pound weight) | Sugar price in US (US$ per pound weight) | |
|---|---|---|
| 2011 | 0.27 | 0.38 |
| 2012 | 0.22 | 0.29 |
| 2013 | 0.18 | 0.21 |
Source: United States Department of Agriculture
Explain one possible reason for the change in the world sugar price between 2011 and 2013.
Explain one possible reason for the difference in the price of sugar in the US and the world price of sugar shown in Table 1.
What is meant by ‘dumping’?
Explain why Mexican producers might choose to dump their sugar in the US market.
Consider how an economist would decide whether the accusation that Mexican producers were dumping sugar in the US was justified.
With the help of a diagram, explain the likely impact on the US market for raw sugar if a minimum price higher than US$0.21 had been imposed in 2013.
Consider who, if anybody, in the US and Mexico might benefit from a trade war despite the advantages of free trade.
The rest of this paper
3 more questions- Q2Consumer and Producer Surplus · Methods of Government Intervention in Markets · Classification of Goods and Services · Elasticities of Demand20M
- Q3Aggregate Demand and Aggregate Supply · Balance of Payments20M
- Q4Exchange Rates20M