Question
Question 1 ( a) Assume that the markets for sugar cane, rum and whiskey are initially in equilibrium (i.e., supply equals demand in each case
Question 1 (a) Assume that the markets for sugar cane, rum and whiskey are initially in equilibrium (i.e., supply equals demand in each case). Assume further that a good harvest impacts the world's sugar cane crop. Sugar cane is a principal ingredient in rum, but it is not an ingredient in whiskey. Rum and whiskey are substitutes in consumption.
(i) Discuss the impact of the good harvest on each of the three markets. (ii) Discuss the effect on the markets for each of the three products if the government implements a price restriction in the sugar cane market with the aim of protecting the farmers. How will this impact the revenues for sugar growers, rum producers and whiskey producers? (b) Identify a newspaper article that illustrates a market failure in your assigned Caribbean country BARBADOS. Ensure that you provide a screenshot of the article in your submission.
NOTE: Only the following market failures should be examined: public good, asymmetric information, positive or negative externality. (i) Provide a brief summary of the main points in the article. (ii) Identify the type of market failure being discussed in the article and discuss why market failure occurs in this scenario. (iii) Suggest a relevant government policy that would yield the efficient outcome and carefully explain the process through which the implementation of the government policy will lead to the optimal outcome. (iv) How will the imposition of the chosen government policy impact consumer surplus, producer surplus and total surplus in this scenario?
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