Introduction
Sales conditions dictated by today’s market trends are largely based on supply and demand indicators as the key parameters that determine the dynamics of seller-consumer relationships. Corresponding fluctuations of these factors directly affect the share of production and pricing. One of the economic concepts to take into account, in this case, is the surplus, which can be both consumer and producer. As an example of a situation in which surplus affects supply and demand, one can consider the case described in the video on the production and sale of sugar (“Sugar runs into barriers,” 2012). Supply and demand curves vary based on the available share of the product, and the surplus parameter largely shapes current sales.
Supply and Demand Curves for Sugar
Based on the information provided, sugar supplies cannot be established in the volume that consumers need. As the graph in the video shows, the demand curve is higher than the supply curve, and this is largely due to the insufficient port capacity of world exporters to accommodate the required amount of sugar for shipment (“Sugar runs into barriers,” 2012). In addition, the policy issues of individual countries, such as India, do not allow the export of this product in the volume required by the global market (“Sugar runs into barriers,” 2012). Producer surplus, in this case, rises as the price of the product increases due to greater demand (Bar-Gill, 2021). This situation describes the presented demand and supply curves for sugar.
Producer Surplus
When analyzing the producer surplus of sugar in the case in question, one can note a direct correlation between rising product prices and undersupply. According to Miklós-Thal and Tucker (2019), consumer surplus, under such conditions, is lower since buyers are ready to pay much for scarce goods. Despite the fact that many countries export sugar, the existing constraints do not allow it to be supplied to the target regions in the required volume. As a result, the producer surplus also increases since the cost of sugar as an essential commodity cannot remain low under the existing restrictions.
Problem Background
Despite the fact that sugar is produced in sufficient quantities, some constraints prevent establishing an adequate supply-demand ratio. In addition to the lack of port capacity and policy issues that are mentioned in the video, one can give an example of fiscal barriers. Lloyd and MacLaren (2018) consider sugar taxes in Australia and note the controversy between those who are in favor of higher fees and those who are against such a decision. However, a surplus of six to eight million tons is caused by a supply shortage, and exporters cannot meet demand figures adequately to restore the balance between supply and demand.
Consumer Demand
Consumer demand for sugar is strong, and supply constraints drive consumer surplus. The participants of the video discuss the variety of spheres in which sugar is used in the global market, and any delays in supply lead to shortages (“Sugar runs into barriers,” 2012). Later decisions of the US authorities to curtail the local sugar program confirm the growth in demand. As Trejo-Pech et al. (2020) argued, “removal of the US sugar program would increase consumer surplus from $2.9 to $3.5 billion annually” (p. 3). These figures indicate a gap in supply and demand and demonstrate high consumer surplus parameters.
Potential Impact of Brazilian Sugar Production
When Brazil finishes its seasonal production of sugar, supply and demand curves will change in the direction of balance. According to the video, the country has no export barriers and plans to ship some 33 million tons of sugar (“Sugar runs into barriers,” 2012). This will mean that the shortage of the product will be eliminated, and demand will be met at the expense of supply. Given Brazil’s long history as one of the world’s major sugar suppliers, picking and shipping the crop will mean a temporary end to curve fluctuations. In addition, this will also affect the surplus because the price of the product will be lowered due to the availability of sugar in the market.
Conclusion
Based on the facts from the analyzed video, sugar supply and demand indicators have changed significantly, which entailed changes in producer and consumer surplus. Export challenges and legal constraints explain the delays in the supply of the product, which, in turn, creates a market shortage and justifies the rise in prices. The situation will change when Brazil exports its crop, thereby reducing demand to the traditional level and expanding the share of supply to reduce the deficit.
References
Bar-Gill, O. (2021). Price discrimination with consumer misperception. Applied Economics Letters, 28(10), 829-834. Web.
Lloyd, P., & MacLaren, D. (2018). Should we tax sugar and if so how? Australian Economic Review, 52(1), 19-40. Web.
Miklós-Thal, J., & Tucker, C. (2019). Collusion by algorithm: Does better demand prediction facilitate coordination between sellers? Management Science, 65(4), 1552-1561. Web.
Sugar runs into barriers. (2012). WSJ. Web.
Trejo-Pech, C. J., DeLong, K. L., Lambert, D. M., & Siokos, V. (2020). The impact of US sugar prices on the financial performance of US sugar-using firms. Agricultural and Food Economics, 8(1), 1-17. Web.