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Description
Trade restrictions typically cost students very little as a percent of their expenditures, so it is all too easy for them to conclude that economists' ideas about international trade are abstract and apply little to their daily lives. Conducting a Coca-Cola tasting in the classroom can help drive home how international trade policy affects them in a way that they will remember beyond the final exam.
Import quotas push the price of sugar (i.e., sucrose) in the U.S. far above the world market price. In 2006 the average world market price for raw sugar was 15.5 cents per pound, while in the U.S. the same pound of sugar cost 22.1 cents. Over the last 25 years the U.S. price of sugar has averaged more than double the world market price. As Figure 1 shows, a consistent gap between U.S. and world market prices has existed since 1960, and the trend has been particularly pronounced since 1982. Meanwhile, corn subsidies combined with the sugar quotas keep high fructose corn syrup prices in the U.S. consistently below the U.S. price of sugar. (1)
As a result of these price differentials, Coca-Cola alters its recipe... |
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