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Suppose that research finds a link between high fructose corn syrup (HFCS) and obesity, which then leads American consumers to switch from HFCS products to pure cane sugar products. The graphs show the markets for cane sugar in Haiti and the United States before the studies were divulged. Shift the curves in the graphs, including the horizontal world price curve, to describe the new trade equilibrium that results after the switch in preferences of American households, and then answer the follow‑up question.

Assume that the United States and Haiti are the only non‑HFCS sugar trading parties in the world and that there are no quotas, subsidies, or tariffs distorting these markets.

Sagot :

The new equilibrium from the information shows that sugar cane producers in Haiti benefited.

What is equilibrium?

It should be noted that equilibrium simply means balance that is when the supply of goods and demand are equal.

In this case, in the situation of free trade, the world price line is a horizontal lines. The fact that the consumers in the United States demanded more sugar cane product means that the sugar cane producers in Haiti benefited.

Learn more about equilibrium on:

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Mhalstead1950

Answer:

On the US graph the domestic demand shifts right to show the increased demand for cane sugar. The world price also increases one notch, which applies to both graphs. No other changes are made to the graphs.

The cane sugar producers in Haiti benefit.

Explanation:

As American consumers move their consumption away from products sweetened with HFCS towards those with cane sugar, domestic demand for cane sugar in the United States shifts to the right.

To have an equilibrium with trade, imports must equal exports. Therefore, the international price of sugar moves up until the excess demand (shortage) of sugar in the United States equals the excess supply (surplus) in Haiti. Since only the price of the good has changed, there are movements along the supply curves and Haiti's domestic demand curve, but these curves themselves do not shift. The surplus of 6000 pounds of sugar that Haiti exports is equal to the shortage of 6000 pounds of sugar that the United States imports.

To determine who is better‑off because of the increase in U.S. demand, consider whether or not the higher price is good for the individuals in each country.

Producers are better‑off, since the higher price of sugar increases their producer surplus. This is true for both producers in the United States and those in Haiti.

Consumers in Haiti face a higher price of sugar, so their consumer surplus decreases, meaning that consumers in Haiti are worse off because of the price increase.

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