Sugarcane is an important cash crop grown in India. Sugarcane cultivation and development of sugar industry runs parallel to the growth of human civilization and is as old as agriculture.



1.       Answer the questions which follow the case.

Sugarcane is an important cash crop grown in India. Sugarcane cultivation and development of sugar industry runs parallel to the growth of human civilization and is as old as agriculture. The importance and use of sugarcane and sugar in the country's socio-economic milieu is deep rooted and immense in the current day rural economy set up sugarcane cultivation and sugar industry has been focal point for socio-economic development in rural areas by mobilizing rural resources generating -employment and higher income, transportation and communication facilities.


Government policies affect sugarcane cultivation in a number of ways. Various policies framed by government and micro level factors are influence sugar cultivation, cost and income of sugarcane farmers. The cost of production has significantly increased over a period of time and minimum support Price has not adjusted in accordance with increased cost. Thus, sugarcane farmers in India find themselves in a complex web of problems leading to declining profits. The sugarcane farmers in Maharashtra had given an ultimatum to the state government for its failure to declare better prices for the crop, failing which the farmers said they would organise a 48-hour bandh. The Government announced the Fair` and Remunerative Price (FRP) for sugarcane for the 2014-15 sugarcane season. The FRP imposed a minimum support price for sugarcane at Rs.220 per quintal.


(i)                  What do you think are the reasons for declining profits in sugarcane farming?

(ii)                Explain with a suitable diagram, the amount of consumer and producer surplus without the imposition of minimum support price.

(iii)                Explain what would happen to consumer and producer surplus in the sugarcane market after the imposition of MSP.

(iv)                Will there be any deadweight loss? Explain


2.       For each of the following events, describe in words what happens to the supply, demand, quantity demanded and quantity supplied in the market for new cars.

a.       The auto workers get a large raise.

b.      A new robotic technology is introduced in the factory.

c.       The government subsidizes bus tickets resulting in a large reduction in the cost of a bus ticket.

d.      Real income grow and new cars are normal good.


3.       The market for pizza has following demand and supply.


Quantity demanded

Quantity Supplied



















a.       Graph the demand and supply curves. What is the equilibrium price:

b.      If the price in the market is above the equilibrium price, what would drive the market to the equilibrium?

c.       If the price in the market is 4, what is the excess demand in the market? What would drive the market to the equilibrium?

4.       QD=50 –  2 P + 0.5 PR and Qs = -4 + P. Here PR if the price of a related good.

a.       What is the equilibrium price and quantity if PR =Rs. 5?

b.      Plot the demand and supply curve and show the equilibrium in the same plot.

c.       If govt. imposes tax on the related good by Re.1 per unit, then how the equilibrium will change?

5.       Let the market supply and demand curves are given by the equations

P = 40 + 4Qs and P= 100 – 2Qd. What is the consumer and producer surplus at the equilibrium price and quantity?

6.       Explain the effect of imposition of excise duty (unit tax) on the quantity bought and sold of the commodity and its price. Do buyers of the commodity bear the whole burden of the excise duty?

7.       Suppose that in a year the excise duty on cigarettes is doubled and as a result the total revenue from the excise duty decreases. What conclusions about price elasticity of demand for cigarettes would you draw?

8.       Explain the  importance of the concept of cross elasticity of demand in a) formulating proper price strategy by a firm (b) in analyzing the degree of competition prevailing in an industry.

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