The U.S. government offers significant per unit subsidy payments to U.S. sugar g

Question

The U.S. government offers significant per unit subsidy payments to U.S. sugar growers.  Describe the effects of the introduction of such subsidies on the market for sugar and the market for artificial sweeteners.

i) Explain whether the demand curve (D) or the supply curve (S) shifts in each market, market for sugar and market for artificial sweetener, and if so, in which direction.

ii) Also explain what happens to the equilibrium quantity (Q) and the market price (P) in each market (for Sugar and for Artificial Sweeteners)

Explanation / Answer

¡) When the govt. provides subsidy toh the sugar growers,then they will be able to produce more and thus their demand or supply curve will have a rightward shift or we can say it will shift to its right and the producer of artificial sweetner will not have any specific change in their quantity produced, thus they will have a slightly shifted curve to the left side as the sugar producing firms will attract more customers.

¡¡) Sugar producers will find a new equilibrium where they will meet the quantity demanded at a lower price. If at price 'P' they were producing 'Q' quantity of goods then after subsidy they will produce 'Q1' quantity at price 'P1' and this price 'P1' will be less than price 'P', also the quantity produced after subsidy that is 'Q1' will be more than the quantity produced before subsidy that was 'Q'

In case of artificial sweetners, they will reach an equilibrium where they will produce less quantity than before but at the same price.

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