: Microeconomics 200
:Ivan Adiyan Wijaya
:Mr Leo Kee Chye
Tutorial Day and Time
:Monday, 1PM- 2PM
Biofuel is a type of fuel which has energy that is derived from biological carbon fixation and include fuels which are generated from biomass conversion, such as liquid fuels, solid biomass, and various biogases. Biofuel can decrease fuel costs and reduce the CO2 emissions (Jason Hill 2006). Biofuel can be produced by using some of the crops especially corn. The demand of biofuel is increased which is because of biofuel is used as an alternative source of fuel. This is because of the fuel supplies are depleted caused by worse climate. Therefore, when the demand of biofuels increase, it also soared the price of food, especially corn.
Analyze the impacts of increased demand for biofuels on the demand for and price of crops such as corn.
Recently, demand of biofuels increased because of consumers tend to buy biofuels rather than fossil fuel (fuel). Hence, it is likely that the producers of biofuels will produce more of biofuels due to the high demand of biofuels. As the producers, there are some criterion that need to be observed such as Isocost and Isoquant which are resulted of demand. Isoquant is the set of various technically efficient combinations of resources that can be used to produce a certain level of output that represented by Isoquant curve. Different levels of output have different isoquants. The higher the output level, the higher the isoquant curve is, and the vice versa (Pindyck and Rubenfeld 2009, 207). On the other hand, Isocost is the set of various combinations of resources that can be used on a given total cost and given resource prices represented by Isocost Curve (Pindyck and Rubenfeld 2009, 236). As long as the prices of labor and capital are constant, the higher the output level, will result to the higher isocost curve. Therefore, various isocost of different level of output will be parallel to each other and will have same downward slope.
Figure 1.1 shows that the isocost curve shift from point C1 to C2 and change the output level of biofuel from point B1 to B2. From the graph above, it can be concluded that due to high demand of biofuels, producers of biofuel need more inputs such as corn in order to produce more biofuels. As the demand of corn increase due to the high demand of biofuel, it will effect the price of corn in the market. It will showed below. D3
Figure 1.2 shows that the demand curve D1 which represents the demand of corn as consumption shift to D2 which is caused by the high demand of biofuel. Then demand curve shift to D3 which represents the overall of the demand of corn for both consumption and biofuel.
From the graph above, it can be concluded that because of the high demand which is showed by point Q1 to Q3, it effect to the price of corn in the market which is change from point P1 to P3
(ii). Analyse how developments in agricultural and conversion technology might influence the impacts identified in Part A (i).
There is a development of agriculture technology which impacts to the supply of crops especially corn. In case of the development of agriculture technology, it will drop the price of corn in the market.
Figure 1.3 shows that the supply of corn increase from S1 to S2 which reduce the price of corn from P1 to P2 Other Input
Figure 1.4 shows that there is a change of the isocost curve which is shifted the output level from B1 to B2 (increase). This is because of the decrease in price of corn, so that the producers...
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