C5 Economic Environment of Business Assignment 1(20% weightage) INSTRUCTIONS a) This assignment covers Unit 1 and Unit 2 of the course materials. b) This assignment contains Part A Case Scenario and Part B application questions. Answer ALL questions in Assignment 1. c) This assignment contributes 20% towards final grading for this course. d) This is an individual assignment. No duplication of work will be tolerated. Any plagiarism or collusion may result in disciplinary action. e) Your assignment will be assessed on the factual answer provided based on your reading and analysis from various references related to this course. In addition, you should demonstrate a sound knowledge of the topics covered and adhere to the proper referencing technique. Part A (40 marks) Case Scenario Read the following case scenario carefully and answer all the questions given at the end of the case. Sugar the new oil as prices soar By Andrew Clark The price of sugar on global commodity markets has doubled since the beginning of the year and is close to a 28-year high as hedge funds and speculators jostle to bet on the possibility of an international shortage of the worlds favourite natural sweetener. For financiers seeking adrenaline-driven price lurches, sugar has become the new oil. Historically, raw sugar has traded at between 10 and 12 US cents per pound at the New York Board of Trade. But the price briefly touched 24.85 cents last month, its highest since 1981, and sugar is now hovering around the 23 cent mark. The rise has come amid a broader commodity boom. Metals and energy rose sharply today as the dollar weakened and global stock markets moved higher. There are some solid underlying reasons for the upward lurch in the price of raw sugar. Heavy rain has disrupted milling in the worlds largest producer of sugar, Brazil, where a sizeable portion of sugarcane has been diverted from food use into ethanol fuel. Meanwhile the biggest consumer of sugar, India, has had a dismal monsoon season and has gone from being a net exporter of sugar to an importer. The key premise has really come from Brazil and India, said Sudakshina Unnikrishnan, a commodities analyst at Barclays Capital. The bulk of the problem lies in inclement weather conditions. The London-based International Sugar Organisation predicts that global consumption of sugar will outstrip production by 9m tonnes next year, forcing food companies and governments to dig into stockpiles. In the US, snack manufacturers including Mars, Nestlé and Krispy Kreme Doughnuts urged the Obama administration to relax import controls, warning the US could virtually run out of sugar. Experts say the spectre of a rapidly moving price has attracted the attention of hedge funds seeking to make a short-term speculative buck. Tom Mikulski, a senior strategist at the futures broker Lind-Waldock in Chicago, said: When a market starts to heat up like sugar has, you do see a lot of trend-following funds jumping on the bandwagon. In the City, on the trading floor of the derivatives exchange NYSE Liffe, the volume of trades in white sugar contracts jumped by 40% from 145,554 in August to 204,662 in September. A political outcry over speculation pushing up oil prices last year has encouraged some funds to shift their attention to agriculture futures – in typically lower- profile, less-noticed trading pits. It doesnt draw the attention of regulatory authorities like maybe energy does, said Steve Platt, a futures strategist at Archer Financial Services in Chicago. There has been some movement of index funds into a heavier concentration on sugar. Those with a sweet tooth should not panic. In the EU and US, the sugar market is protected. Prices are controlled in Europe to protect the interests of sugar beet farmers. US authorities allow only limited imports to support the domestic agricultural sector. Sergey Gudoshnikov from the International Sugar Organisation predicted most shoppers will pay little attention anyway: Its a miniscule part of a consumers income. Turn and ask the people sitting around you, do they know how much sugar costs. Unless they have a very, very good memory, they will not. (Adpated from The Guardian, Wednesday 7 October 2009) Questions (a) Elaborate on the causes of sugar price hike as discussed in the article above. [3 marks (b) Using the concept of elasticity explain the notion that sugar expenditure is “…a miniscule part of a consumer’s income”. [4 marks] (c) (i) Prices of sugar in Europe and USA are controlled by the authorities. What type of price control is this and how does it work? [ 3 marks] (ii) Does the Malaysia’s government practise price control over sugar too? Why or why not? Elaborate your answer. [10 marks] (d) Based on your understanding of market equilibrium, explain the effects of the present increase in sugar price on the market for ice-cream. Use an appropriate diagram in your answer. (5 marks] Question 1 Explain five differences between the characteristics of a monopolistic competitive market and a monopoly market. Describe a monopoly market in Malaysia. [ 10 marks ] Question 2 Explain the terms price elasticity of demand, income elasticity of demand and cross elasticity of demand. How is the price elasticity of demand relevant to: a) business owners and managers b) government economic policy makers [ 10 marks ]
Posted on: Thu, 06 Feb 2014 17:25:58 +0000
Trending Topics
Recently Viewed Topics
© 2015