Price Of Sugar

Summary

20 sen more for sugar

http://thestar.com.my/news/story.asp?file=/2011/5/10/nation/8649957&sec=nation

http://www.themalaysianinsider.com/malaysia/article/sugar-price-up-20-sen-tomorrow

From the articles, it tells us that the prices of sugar will be increased by 20 sen to RM2.30 per kilo today, said Domestic Trade, Cooperatives and Consumerism Ministry. There are a hike on the price of sugar because Malaysia government reducing subsidy of sugar.

Opinion

Sugar is goods that most of the human being need in their daily life.

There are some factors affect changes in demand. One of the factors is expected future price. If consumers can actually expected the future price of a good, they will protect their own benefit and purchase more good than previously they bought before the rises of the good. Thus, the demand of the good will be increases before the period. For example, when the consumers expected the price of sugar will be increases tomorrow, they will purchase more sugar to keep first before the price of sugar increases tomorrow. So, the demand of sugar for today increases.

When the price is increasing and the quantity demanded is decreasing, there will be more suppliers and cause a rises at quantity supplied. This concept is actually referring to the Law of supply. Law of supply means that suppliers are more willing to offer more products for sale at a higher price instead of at a lower price. It also stated that those suppliers will try to increase productions in that period to increase their profits. For example, when the price of sugar is increasing, the quantity demanded will be decreasing while the quantity supplied will be increasing as well.

The price elasticity of demand is a units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. There are three types of elastic demands which are perfectly inelastic demand, unit elastic demand and inelastic demand. The demand for most food is inelastic demand. Inelastic is a given % change in price results in a smaller % change in quantity demanded.  The elasticity coefficient is greater than 0 but less than 1. For example, the changes of price of sugar is inelastic to consumers because most of the people usually spend a very small proportion of income, have an almost zero elastic demand.

There are factors that explain why sugar is inelastic demand. First of all, complementary goods. Complementary goods such as sugar tend to be inelastic. For example, if the price of sugar rises, the demand for coffee will be decreases. The demand curve for coffee shifts leftward. It is a negative relationship between price of sugar and the demand for coffee because they need each other at the same time. 

There are some other factors affect elasticity such as the closeness of substitutes, the proportion of income spent on good and the time elapsed since the price changed. First of all, the closeness of substitutes. Sugar is necessities goods and it has weak substitutes so it consider as inelastic demand. Next, the proportion of income spent on good. We spent a very small proportion of income on sugar every day. Thus, sugar is inelastic demand. Lastly, time elapsed since price change. The elasticity of demand depends on whether the value of sugar can stay for a long period of time. In this case, sugar is inelastic, therefore its elasticity of demand is greater. For example, at a longer period of time, consumers will find a substitute for sugar as they have no choice on the price that has been set.

When the price of sugar is higher, the quantity supplied will be higher as well because supplier can earn more profit while the quantity demanded will be lower. Thus, it will cause a surplus in the graph. A surplus is a situation where there is an excess at some price of quantity supplied over quantity demanded.  On a supply and demand curve a surplus is represented by points above the equilibrium price.  When a surplus exists buyers have an oversupply of product to choose from and will probably pay less for goods and services.  For sellers, they are competing with other suppliers for customers and their prices will fall, as will their sales.

Based on the article, the price of sugar goes up due to Malaysia Government reducing the subsidy of sugar. Subsidy is a payments made by the government to producers, decrease the prices paid by buyers and increase the prices received by sellers. There are the effects of a subsidy, such as a fall in price and increase in quantity supplied. The subsidy lowers the price of sugar and increases the quantity supplied of sugar. Besides, payments by government to supplier. The government pays a subsidy to sugar suppliers on each tons of sugar. For example, suppliers increase their supply of sugar to 60 million tons a year and receive a subsidy of $20 a ton. Suppliers receive payments from the government.

Lastly, government is using the concept of price ceiling to control the market of sugar. Based on the graph below, price ceiling is the price that government set below the equilibrium price. There are few reasons of government applied price ceiling to a sugar market. First of all, to prevent black market. Black market is an illegal market in which the equilibrium price exceeds the price ceiling. For example, some suppliers might sell their products with the price that higher than the government set to the buyers.