Name Tarni Mahendra

Question 1

A. Collusion in Oligopolies involves joint decision making by few players in the market to
influence output price of a product.

The advantages of such joint decisions are:

The producers have more power and their ability to take decisions gets stronger. They can
manipulate and increase the prices.

Disadvantages:

Because of such collusions new firms are discouraged to enter the market.

Consumer surplus is decreased as collusion leads to increase in the prices for them.

B. Reasons for OPEC to cut the supply of oil: •The demand of oil shrunk down due to the

lockdown that led to surplus of oil and increased cost of storage. Traders were paying
money to get rid of oil. Shortage of storage space forced OPEC to cut supply. Desired
outcome of the supply cut was to increase oil price which has fallen into negatives due
to record surplus due to worldwide lockdown. Change in demand and Supply Curve
 before the decision. Due to the record fall in oil demand, the demand curve would shift
broadly to the left (D2) and supply would remain the constant.

C. OPEC operates in Oligopoly market.

Key features of oligopoly are:

There are few firms in the market that dominates the market. For e.g., in India automobile and
telecom sectors comes under the oligopoly market.

The products can be both identical and differentiated.

The cost to enter the market is very high as there are already large players in the market.

Question 2

*. The business was producing 65 articles.

*. The total profit was 2500. Total profit comes when MC=MR.

*. The profit maximizing output comes where MC=MR. This is a level when there is no
change in the profit. Going beyond this level will not give profit to the firm.

 3 journalists need to be fired.

 65
 We need to fire the journalist as the organization is concerned only for the profits.
Hiring more journalists will not increase the profit and the organization needs to
pay the cost of extra journalist from their own pocket. Therefore they decided to
fire them.
Question 3

A. Cyclical Unemployment will occur due to such a pandemic. During the times of Covid-
19 the demand for all the goods decreased apart from the essentials. Since the economy
was slowed down at a pace, the overall demand was reduced which led to the decrease
in the consumption.

The overall demand was not generated and it curled the production which results to go a lot of
people and leads to cyclical unemployment.

B. Mixed type of recession would occur due to such type of recession i.e., both supply
shock and demand led recession. The pandemic started as supply shock recession when
China’s shutdowns and slowdown production of caused affected many countries who
relied on the components which were supplied by the China. But later on, it became the
demand led recession and continued to be demand led only. The demand for various
goods and services were decreased and hampered like clothing, tourism and
transportation.

C. Both Aggregate demand and Aggregate supply will be reduced because of the given
phenomenon. In India Aggregate demand had a bigger impact than aggregate supply
and there were several reasons for the same like less purchasing power, loss of
employment and change in preferences of the consumers.

D. Both AD and AS curve will shift leftward. Because of such situation supply chain was
disrupted due to which supply was reduced and it results to leftward shift in the supply
curve. But lately Aggregate demand was more affected than supply curve.

Question 4
 A. The Indian government should adopt expansionary fiscal policy during such a crisis.
The government should spend as much as possible to mitigate the economic losses.
All the non-essential and long-term expenditures was placed on halt by the
government of India and they focused on necessary expenditures like healthcare,
unemployment and financial needs of the country. They also lacked a fiscal buffer due
to the previous high debt.

The policy measures which were undertaken by the government were:

Pradhan Mantri Garib Kalyan Package (PMGKP) was announced under which approx.
42 crores of people received the financial assistance of INR 20 lakh crore.
Many relief measures were announced for MSME Sectors, additional support was
provided to the farmers through the concessional credit.
Wages was increased for MNREGA workers.
Borrowing limits was increased for the state governments.

B. Expansionary Monetary policy should be adopted by the RBI during such crisis.

Some expansionary measures that were taken by the RBI:

Borrowing costs and rate of interest were reduced.

One scheme was introduced by the RBI known as VRR (Voluntary Retention Route). The
scheme was meant for foreign portfolio investors who have made long term investments in the
securities which was issues by the GOI. The motive of the scheme was to provide access to the
additional resources to the local debt market.