In a press release on 17 April 1997, the Australian Democrats announced their support for a tariff on sugar imports into Australia. The tariff on sugar at the time was $55 per tonne.

a Illustrate the effect of this tariff on the Australian sugar market. Label the relevant prices and quantities under free trade and under the tariff.

b Analyse the effects of the sugar tariff using the tools of welfare analysis.

c The Cairns Council claimed that the removal of the sugar tariff would lead to a loss of $2 million in revenue to five local sugar mills and the loss of many jobs. Do you think that these claims justify maintaining the tariff? d Many overseas countries also protect their local sugar industries. The Wall Street Journal (26 June 1990) stated that the protection of the US sugar industry ‘has helped make possible the spectacular rise of the high-fructose corn syrup industry’. Why would protecting the sugar industry have this effect? (Hint: Do you think sugar and corn syrup are substitutes or complements?)


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