Name Ankit Patawari

Question 1

Write your answer for Part A here.

The phenomenon is called Collusion. Countries from OPEC came together to reduce the
supply of oil by 9.7 billion barrels to ensure that the oil prices do not fall further. This
collusion to produce monopoly output & sell at a monopoly price is called a cartel.

Advantage.
1) Stopping the prices from falling down further
2) Control Decision Making
3) Political stability
4) Reducing the cost of storage
5) Power: as they are now working as monopoly
6) Efficiency in production
Disadvantages of Cartels.
1) Competition has gone down for the consumers
2) The decision making power of the consumer has gone down.
3) Prices will go up
4) Less choices in terms of quality & quantity

Write your answer for Part B here.

OPEC made the decision to cut the supply of oil by 9.7 billion barrels as there was a fall in
demand which impacted the prices negatively. Due to lack of demand for oil; the prices of
oil were going down which led to the decision of cutting the supply.

The desired outcome was to have the ability to control the prices from falling further. Have
the control over the market as they have now become a monopoly, which empowers them to
have more control over the market. Also, gives them the political stability. It also helped in
efficiency as they saved money by not having to store the oil.

Before the decision to reduce the supply was taken, with the decrease in demand of oil &
increase in supply the prices of oil were falling. Hence, it was important for OPEC to take a
decision. Hence, the decision taken was to reduce the supply of oil in the market.
 After the decision of reducing the supply of oil had reduced but as time passed the demand
started increasing as things started normalizing & people slowly and gradually getting back
to work the demand for oil started increasing.  With demand for oil just picking up and with
the decreased supply of oil as per the decision the prices of oil started increasing.

Write your answer for Part C here.

The market in which OPEC operates is the Oligopoly market.  The key features of the
market are as follows: -

1.     Few firms with large market share: It's a kind of market where few firms have
the largest share in the market. The market may have many sellers, but the majority of
market share is with the top 4-5 firms.

2.     High barriers to entry: It’s difficult for new entrants to enter the market start-up
costs are high, brand loyalty has a very significant role to play in this market, and firms
usually have patents against their name.

3.     Interdependence: Action taken by one firm affects the decision of the

competitors in the market. In the oligopoly market, firms operate based on how they
believe competitors will react to their decision.

4.     Firms have little Market Power: As the firms are interdependent on each other
& are impacted by the decision taken by other firms the firms in the oligopoly market
have very little market power.

5.     Higher Prices than in a perfectly competitive market: In a perfectly

competitive market the prices are just above marginal cost making it less profitable but
in oligopoly as firms have combined market power, they usually keep the prices higher
to obtain larger profits.

6.     More efficient: As majority of the market share is with few firms they benefit
from economies of scale – meaning they can produce at a lower cost. Usually, these
markets have high fixed costs making entry difficult.

Question 2
Write your answer for Part A here.

·      The business was producing 92 Articles

·      The total profit was  €2500

·      The profit maximizing level happens when “Marginal Cost = Marginal

Revenue”. We have been provided with the basic information such as no. of
journalist, fixed cost, variable cost, no of articles and revenue per article. Using
these details, we can derive the

·      Total cost per month = (fixed cost + variable cost)

·      Total revenue per month = Revenue per article * no. of articles),

·      Profit/Loss: Total Revenue-Total Cost

·      Marginal Cost = Difference in total cost/difference in no of articles (one

more journalist)

·      Marginal Revenue = Difference in total revenue/difference in no of articles

(one more journalist)

When MC=MR is when the company is at profit maximization level. The profit
maximizing level is the current scenario is at having 8 journalists.

Write your answer for Part B here.

  The company would need to fire 4 journalists assuming we only care about
maximizing profit
 €1500 is the new total profit
 The profit maximization happens when “Marginal Cost = Marginal Revenue” After
the covid there are a few changes that have taken place like now there is no fixed
cost, the revenue per article has now been reduced to €250. We have been provided
with the basic information such as no. of journalist, fixed cost, variable cost, no of
articles and revenue per article. Using these details, we can derive the

o   Total cost per month = Total variable cost

o   Total revenue per month = Revenue per article * no. of articles

o   Profit/Loss: Total Revenue-Total Cost

o   Marginal Cost = Difference in total cost/difference in no of articles (one

more journalist)

o   Marginal Revenue = Difference in total revenue/difference in no of

articles (one more journalist)

o   When MC=MR is when the company is at profit maximizing level

o   the new level of profit maximization is now at 4 journalists

Question 3

Write your answer for Part A here.

The type of recession that a country like India would face is called Cyclical unemployment.
The recession largely remained a demand led recession due to pandemic as there was fall in
demand for goods & services. If the aggregate demand is low the profit motives of the firms.
Due to this a lot of firms will exit the market, shut down temporarily or start making losses.
When there is no demand, the firms will start laying off workers. When the workers are
being laid off their purchasing power goes down as they have less amount to spend which
further reduces the demand for the products in the market which again creates more
unemployment as firms will start laying off people. This negative loop which has been
created due to the fall in demand as the purchasing power of people goes down is called
cyclical unemployment. This is a short run unemployment as the currently the economy is
seeing a slowdown/recession, once the economy starts picking up, we see an increase in
overall demand of goods & services people will be called back and will be employed as the
economy expands & recovers. This is fluctuating unemployment led by fluctuating demand
which is a short run unemployment.

Write your answer for Part B here.

The recession caused during the pandemic was both demand shock as well as supply shock
recession. Though it was both the demand & supply shock it largely remained a demand led
recession as the aggregate demand for goods & services remained low for most part of the
pandemic. Few of the sectors that saw a great deal of fall in demand were Aviation, MSME
sector, construction, automobile etc. The reason for the fall in aggregate demand in these
sectors was because these were not the necessities or requirements of the people. A large
section of the society was focused on the basic necessities/requirements to survive rather
than looking at things that were not a requirement or need to survive.
Write your answer for Part C here.
The aggregate demand & supply will fall/decrease in India because of the above two
phenomena. As the recession started taking place in the economy, the aggregate demand for
the goods & services started falling due to the following reasons - discretionary spending &
unemployment, restrictions in movement/travel, lockdown imposed in major parts of the
country– to name a few. All these factors and with change in consumer behavior there was
a fall in aggregate demand of products. The only list of items where the demand had
impacted or had seen an increase were daily essentials, health care products.   The reason
for the fall in aggregate supply was due to the disruption of supply-chain of goods &
services. Industries like manufacturers, wholesalers & retailers were facing challenges
 related to the supply chain. Transportation of essentials, health care, grocery items etc. were
also impacted as the demand for these just overwhelmed the supply in the market.
Predicting the supply chain during the pandemic was challenging as there were manpower
issues, government regulation & transportation issues. One of the major factors impacting
the supply chain was safety. All these factors along with consumer preferences the supply
chain was disrupted. Supply coming in & out from China also disrupted the Supply chain.
Shortages were faced by countries for a lot of goods that came from China like electrical
machinery, organic chemicals, semiconductors etc.
Write your answer for Part D here.
The aggregate demand & aggregate supply both have reduced but, in this situation, the
aggregate demand has fallen more than the aggregate supply all this due to consumer
behavior. The AD/AS curves will have a leftwards shift in this situation. During the
recession the demand went down & so did the supply but the pressure on the prices
remained much lower as the major focus was to bring the demand back and economy
towards equilibrium

Question 4

Write your answer for Part A here.

Fiscal policy is the macroeconomic policy which India should adopt after such crises.
Fiscal policy is the policy that is announced by the government of India. There are two
types of fiscal policy which are the contractionary & expansionary policy. The policy of
increasing the expenditure and reducing the taxes is called expansionary policy. While the
policy of decreasing the expenditure and increasing the taxes is called contractionary fiscal
policy. During the pandemic India adopted an expansionary fiscal policy so that the people
of India will have more money to spend so that it can have a multiplier effect in the
economy. The government increases the overall expenditure through various policies which
help in reversing the cycle. One of the major fiscal policies announced during the pandemic
by the Indian government was 20,000 cr. Garib Kalyan Yojana. It was announced in 5
different tranches 1. Money to the MSME sector. 2. Below poverty line people through
subsidized food, fund transfer. 3&4 Agriculture & industries through subsidies, mortarium,
loan etc. 5 MGNREGA. These policies helped the Indian govt in giving more power to
spend which was required to increase the demand in the market.
Write your answer for Part B here.
Monetary policy is a macroeconomic policy which India should adopt during such crises.
Unlike fiscal policy, monetary policy is a short run policy which has more tools like Open
Market Operations, Cash Reserve Ratio’s (CRR), Statutory Liquidity Ratio (SLR), Direct
Lending to Banks, Bank Reserve Requirement to name a few. Due to the pandemic the
economic activities were at the lowest levels as the spending power of people had reduced.
The RBI as a part of expansionary monetary policy will infuse money to bring the demand
to an adequate level so money is required to resume the economy. During the recession RBI
will reduce the REPO rate as repo rate is the rate at which the central bank (RBI) leds
money to commercial banks. Reducing the REPO rate will help the banks to borrow more
money which in-turn will help the people of country the easy access to the money which in
turn will also increase the spending power. buy the bonds & securities and infuse money &
liquidity in the economy. RBI needs to reduce the CRR as it will increase flow of money
circulation in the economy. SLR is treasury bonds, cash, gold, foreign currency, bonds &
securities which needs to be maintained with RBI. They govt will increase the SLR of banks
with RBI to add money to the market. These policies which are tools of RBI were used as
expansionary monetary  policy were used to bring back the economy.