Name Yogesh Ramdas Patil

Question 1

Part A:
The Phenomenon which involves such joint decision-making is known as Collusion.
Collusion takes place in an Oligopoly market where there are few firms that control
the output and prices of products. OPEC is one such organization where the member nations
are in collusion.
The following are its advantages:
 Firms/Organizations collude with the intention of maximizing profit and reducing the
competitiveness of the market.
 During the uncertain time, like recession, firms/organizations have the power to
control supply which in turn helps in keeping the price stable.
 Since firms/organizations united as per this phenomenon, competitive advertising is
avoided, thus helping the firms to solely focus on production.
 As production is cut down, it saves and reduces the storage cost
The following are its disadvantages:
 Leading to a decline in consumer left-over.
 Eliminating fair competition.

Part B:

In a lockdown, we saw a sharp fall in demand for fossil fuels with the current supply. OPEC
decided to cut down the supply to stabilize the fall in prices. With this decision OPEC is able
to share the research and development, they are able to control the price and cost, and due to
this, it helps them to get political stability and control in the market.
Analysis of OPECs decision
Before:
There was a leftward shift in the demand curve which was caused by a due lockdown
resulting in less consumption of crude
After:
The decision to cut supply resulted in a leftward shift of the supply curve, so they reduce the
supply. This decision led to an increase in demand and a rise in the price.

Part C:

OPEC operates in an Oligopoly market structure. The following are its features
 Few firms that are interdependent or in collusion
 The members have control over the price/quantity
 There are high barriers to entry for new firms

Question 2

Part A:

 92 articles with 8 journalists were producing the business.

 The total profit is €2500
 In order to find the profit-maximizing level, we must calculate the equilibrium level
between Marginal Costs and Marginal Revenue i.e., at this level of output the marginal
cost is equal to the marginal revenue (MC=MR).

Part B:

 If Only profit maximizing level is being considered we would have to fire 4, as

maximum profits can be achieved by producing 54 articles with 4 journalists.
 The total new profit is €1500.
 The website is considered profit maximization only. During the pre-covid period, I
achieved maximum profit by producing 92 articles with 8 journalists. Due to covid
restrictions, my costs and revenue had reduced due to which I achieve equilibrium
(marginal cost = marginal revenue) and maximum profit by producing 54 articles with
 4 journalists. Hence, I will fire 4 additional journalists.

Question 3

Part A:
India would face cyclical unemployment Due to covid there was a fall in the
aggregate demand which resulted in a reduction of the profit of a firm. This led to a lay of
workers increasing the unemployment rate.
However, this type of unemployment is short term i.e. as the economy recovers the
aggregate demand would go up due to which firms would start employing more people to meet
the aggregate demand.

Part B:

The recession started as a supply shock recession which gradually became a demand-led
recession. The restrictions such as lockdowns and social distancing imposed by governments
to control the pandemic caused major disruption in the supply chains which led to a
fall in aggregate supply leading to a supply shock recession. As the profits of firms were
reduced, firms had to lay off workers. This caused a reduction in purchasing power which led
to a sharp fall in aggregate demand. The mass unemployment and widespread bankruptcy
converted the recession into a Demand-led to recession.

Part C:

The aggregate demand would fall due to mass unemployment reduction in purchasing power
and bankruptcy caused by the pandemic.
The aggregate supply would also fall as there is a reduction in investment, disruption in the
supply chain

Part D:

The pandemic was both a supply shock recession and a demand-led recession.
The aggregate supply had fallen caused of a disruption in the supply chain, a reduction in
 Investments, etc. resulting in the AS curve shifting to the left.
The aggregate demand had fallen due to unemployment reduction in purchasing power and
bankruptcy resulting in a leftward shift of the AD curve. Both AD and AS reduce cause
recession and slow down.

Question 4

Part A:

The government should adopt an expansionary fiscal policy. Expansionary fiscal policy
is implemented during times of recession or slow economic activity in order to
stimulate the economy and increase aggregate demand.
The government can use the following tools to implement the policy:
 Taxation
Government can reduce the tax burden during a pandemic to ease citizens by adding to
their purchasing power
 Government spending
The government can increase its spending by providing stimulus packages or
transfer payments to citizens, providing subsidies to support economic activity
thereby increasing the aggregate demand in the economy.
One example of the expansionary fiscal policy by the Indian Government Protection of
workers in the informal sector through the Mahatma Gandhi National Rural Employment
and Jan Dhan accounts. These systems operate as automatic stabilizers in a way
that unemployed persons can apply for jobs when they need them.

Part B:

The Reserve Bank of India should adopt an expansionary monetary policy to infuse
cash/liquidity into the market. RBI can regulate the flow of cash in the economy
through the following tools
 Open market operation – by purchasing the government bonds from the open market
and infusing cash into the economy.
 Repo rate - It is the interest rate at which banks can borrow from RBI. During
recession RBI will lower its repo rate making it easier for banks to borrow more
from RBI thereby making loans cheaper for public
 Reverse repo rate - Reverse repo rate is the interest rate at which RBI will pay to
the Banks that have deposited their funds with RBI. During recessions, RBI will
reduce the reverse repo rate in order to encourage banks to deposit less with RBI
thereby increasing liquidity and infusing cash in the economy.
 Cash reserve ratio – It is a ratio fixed by RBI at which all banks must maintain a
minimum cash reserve. RBI reduces the Cash reserve ratio during recessions
freeing up surplus cash in order to infuse funds into the economy