Micro Commentary

Essay by aalexd97High School, 11th grade November 2014

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IA Economics

IA - 1

Alex de Hemptinne

IB Economics - HL

Mr. Barros

Internal Assessment 1

Word count: 739

U.S. sugar subsidies are a sour deal for taxpayers

Harrop, Froma. "US Sugar Subsidies a Sour Deal for Taxpayers." NewsObserver. N.p., 24 Oct. 2013. Web. 14 Jan. 2014. <http://www.newsobserver.com/2013/10/24/3309351/us-sugar-subsidies-a-sour-deal.html>.

The U.S. government has attempted to restore its economy after the great recession by helping out local sugar farm businesses. To do this they have made use of government incentives. Some of these include subsidies and price support systems. Subsidies are sums of money supplied by the government to lower the producer's production costs. On the other hand the price support system is a government system in which they maintain the price of a good, sugar, at a price higher than the equilibrium. These guarantee a constant income for the sugar producers. However this can create an impact in the large-scale sweets production.

In the graph below (Graph 1) we can see how the price support system has affected the sugar market in the United States. The equilibrium price for the Domestic sugar market is higher than the international price market. However, the US government set a tax on the imports. With the import tax, the producer and consumer surplus decrease thus in the long run they're not actually making any profit. The consumer surplus is the amount that the consumer is willing and able to pay at a given time and the producer surplus is the amount that the producer is willing to receive at a given time. However this results in a deadweight loss, which is a loss of economic efficiency.

In the following graph (Graph 2), one can state that there is a decrease in supply of sweets for the large scale candy making businesses. This...