The price elasticity of demand (PED) for sugar in most countries is less than 1. In 2017, the price of sugar fell. However, the price of specialised, higher quality sugar grown in countries such as Mauritius fell by less than the average global price. Efficient producers, such as some farmers in Brazil that have a low fixed cost of production, were also less affected by the fall in price.

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [2] % change in quantity demanded divided by % change in price (2). Change in demand divided by change in price (1).
2. [4] demand may fall (1); supply may increase (1); a fall in income will lower demand (1) because of less purchasing power (1); a fall in population will lower demand (1) as there will be fewer consumers (1); a change in tastes will lower demand (1) as people may find sugar less appealing (1); concern about health will lower demand (1) as consumers will switch to other foods (1); a rise in the price of a complement (1) e.g. tea (1); a fall in the price of a substitute (1) e.g. sweeteners (1); reduction in costs of production will increase supply (1) as it is likely to lead to higher profits (1); subsidies will increase supply (1) as they will give an incentive to firms to produce more (1); a cut in indirect tax will increase supply (1) as it lowers costs (1); good weather conditions will increase supply (1) as less of the crop will be lost (1); more firms in the market (1) increasing competition in the market (1)
3. [6] Fixed costs are costs that do not alter with output (1) in the short run (1). Rent may increase (1) landlords may decide to charge more for factories and offices (1). The amount charged for insurance may increase (1) insurance companies may be seeking higher profits / their costs have risen (1). Interest paid on loans may increase (1) e.g. the central bank may have increased the rate of interest (1). A firm may have moved to a larger factory / changed its production process / using more capital goods (1) leading to higher fixed capital costs (1). Inflation may occur (1) increasing e.g. the cost of workers with long-term contracts (1).
4. [8] Up to 5 marks for why it might: It may increase efficiency/productivity (1) workers may be well trained in sugar production (1) advantage may be taken of economies of scale (1) lower cost (1) lower price (1) exports may increase / imports may fall (1) improving the current account position (1). The country may have the right climate (1) to give a good crop of sugar beet/cane (1) economic growth may increase (1). Agriculture may be labour intensive (1) creating employment for high number of workers (1). The country may gain a reputation for high quality agricultural products (1) increasing demand (1). May benefit if demand for the product is high (1). Up to 5 marks for why it might not: Demand may fall (1) due to a change in tastes (1) rise in competitors (1). Supply may be reduced (1) by bad weather or a disease (1). Demand for manufactured good and for services tend to increase more as income rises (1) larger profits tend to be earned on these products (1). Diseconomies of scale may set in (1) Economies of scale tend to be more significant in manufacturing (1). Agricultural products tend to have more trade restrictions imposed on them (1) making it more difficult to export them (1). Market prices of agricultural products are more variable (1) farmers face uncertainty in predicting income (1). The country may become dependent on other countries for other products (1).