Micro200

Assignment

Student’s name: Guo Fei

Student ID: 15237275

Unit name: Microeconomics 200

Tutorial day and time: Tuesday 3PM-5PM

Tutor’s name: Dr Glenn Anderson

Nowadays, biofuel has become an alternative source of fuel. In the past few years, the percentages of biofuel used increased rapidly. There are two main reasons for the increase. The first one is due to the constraints on the supply of oil. The second reason is the environmental benefit concerns climate change. However, there are both pros and cons of using biofuels. The benefit for biofuel is it can substitute fossil fuels to reduce greenhouse gas emissions from transport and also it can develop the economic of countryside. The cons include the use of food crops to make biofuels may lead the increase in price of the global food. Also, using biofuel seems less efficient use of land to reduce emissions. The following papers will analysis first the effects of increased demand for biofuels on the inputs to its production by the perspective of production behavior. Secondly, the effects of changing fuel and crop prices on individuals by the perspective of consumer behavior. Lastly, identify and consider about the government policy which promote and support biofuel development.

An increase in demand of biofuel will simply lead the increase in the inputs. Suppose that the inputs are corn and oil and that they are used to produce biofuel. The effect of change in the amount of corns demanded can represented graphically using isoquants (Figure 1). An isoquant is a curve that shows all the possible combinations of inputs that yield the same output. For instance, isoquant q1 shows all combinations of corn and oil per year those together yield lower units of output per year. Isoquant q2 shows all combinations of inputs that yield higher units of output. Isoquant q2 lies above and to the right of q1 because obtaining a higher level of output requires more corn...