Jamaica's Sugar Industry Takes a Hit

Sugar production in Jamaica amounts to a little over a third of the country's exports. The country was one that could sell its sugar in the European Union (EU) at a price three times higher than the world market price. Under an agreement reached with the World Trade Organization in 2009, the EU agreed to cut the sugar subsidy by 36 percent over the next four years. The result is an expected price that would seriously harm Jamaican sugar producers who are not competitive at the world market price of sugar.

Using the supply and demand model, explain how the reduction in the EU sugar subsidy would affect the price of sugar paid to the Jamaicans.