Name Samriti Raheja

Question 1

Write your answer for Part A here.

Collusion is the phenomenon that involves such joint decision making. Collusion occurs in an
Oligopoly market, where a few firms control the output and prices of a product. OPEC is one
such organization whose member countries work together. Firms in an oligopoly market are
often interdependent, meaning that their decisions and actions will affect the other firms in the
market. This can lead to a situation where firms are uncertain about the actions of their rivals
and engage in collusive or non-collusive behaviors to secure more profits. Collusive behaviors
can include price-fixing, market sharing, and output restriction.

It has the following benefits:

1. Firms/organizations conspire in order to maximize profit while decreasing market

competitiveness.

2. During uncertain times, such as a recession, firms/organizations have the ability to control
supply, which helps to keep prices stable.

It has the following drawbacks:

1. Collusion primarily implies high consumer prices, resulting in a decrease in consumer

surplus.

2. Colluding firms act as a unit, limiting entry into the market and thus eliminating fair
competition.

Write your answer for Part B here.

The rationale for the decision to reduce supply

Because of the Pandemic, the world went into lockdown, resulting in a sharp drop in demand
for fossil fuels with current supply. OPEC decided to reduce supply in order to stabilise price
declines.

An examination of OPEC's decision

Before

The demand curve shifted to the left as a result of the lockdown, resulting in lower crude
consumption.

After

The decision to reduce supply caused the supply curve to shift to the left. However, due to
inelastic demand, OPEC was unable to fully achieve the desired result. This was due to
consumer countries having an excess of crude and being unable to accept additional supply.
As a result, it did not contribute significantly to returning prices to pre-COVID levels, as
predicted by OPEC.

Write your answer for Part C here.

OPEC operates in an oligopolistic market.

It has the following characteristics:

1. A small number of firms that are interdependent or collaborate

2. The members have price/quantity control.

3. There are significant barriers to entry for new businesses.

Question 2
 Write your answer for Part A here.

As the Italian news website considers operating at a profit-maximizing output level. It makes
the most money while producing 92 articles with 8 journalists.

€2,500 was the total profit.

To find the profit-maximizing level, we must calculate the equilibrium level between marginal
costs and marginal revenue, i.e. the marginal cost equals the marginal revenue at this level of
output.

Write your answer for Part B here.

When profit maximization is taken into account, I would have to fire four journalists because I
make the most money by producing 54 articles with four journalists. The revised total profit is
€1500.

Profit maximization is taken into account on the website. During the pre-COVID period, I
made the most money by producing 92 articles with eight journalists. Because COVID
restrictions reduced my costs and revenue, I was able to achieve equilibrium (marginal cost =
marginal revenue) and maximize profit by producing 54 articles with four journalists. As a
result, I will fire four more journalists.

Question 3

Write your answer for Part A here.

India would suffer from cyclical unemployment. COVID caused a decrease in aggregate
demand, which resulted in a decrease in a firm's profit. This resulted in layoffs, raising the
unemployment rate.
 However, this type of unemployment is temporary, as the economy recovers, aggregate
demand rises, and firms begin hiring more people to meet the aggregate demand.

Write your answer for Part B here.

Because of government restrictions and measures to control the spread of the pandemic, the
recession began as a supply shock recession and gradually evolved into a demand led
recession. Government-imposed restrictions such as lockdowns and social distancing to
control the pandemic caused major disruption in supply chains, resulting in a drop in
aggregate supply and a supply shock recession.

Firms were forced to lay off workers as their profits shrank. This reduced purchasing power,
resulting in a sharp drop in aggregate demand. The recession became a demand-led recession
as a result of mass unemployment and widespread bankruptcy.

Write your answer for Part C here.

Because of the pandemic's mass unemployment, decreased purchasing power, and bankruptcy,
aggregate demand would fall. The aggregate supply would also fall as a result of reduced
investment and supply chain disruption.

Write your answer for Part D here.

The pandemic caused both a supply shock and a demand-led recession.

The aggregate supply had fallen due to disruptions in the supply chain, reductions in
investments, and other factors, causing the AS curve to shift to the left.

Because of unemployment, decreased purchasing power, and bankruptcy, aggregate demand

fell, causing the AD curve to shift to the left.

Question 4
Write your answer for Part A here.

The Indian government should consider a number of macroeconomic policy measures to help
the country recover from the economic impacts of the Covid-19 pandemic. Some possible
policy measures that the government could consider include:

Monetary policy: The Reserve Bank of India (RBI) could lower interest rates to encourage
borrowing and spending, which would help to stimulate economic growth. This could also
involve measures such as quantitative easing to help increase the money supply and boost
lending to businesses and households.

Fiscal policy: The government could increase spending on infrastructure and other public
goods and services to help create jobs and stimulate economic growth. This could include
measures such as increasing government spending on infrastructure projects, providing tax
breaks to businesses, and increasing social welfare spending.

Trade and investment policy: The government could relax trade barriers and encourage
foreign investment to help increase the flow of goods and capital into the country. This could
include measures such as reducing tariffs and other trade barriers, making it easier for
foreign firms to invest in India, and encouraging Indian firms to invest abroad.

Labor market policy: The government could take steps to improve labor market conditions,
such as increasing the minimum wage, strengthening labor rights, and providing training and
education programs to help workers acquire new skills and find better-paying jobs.

Reforms: The government could also undertake structural reforms to improve the business
environment and ease of doing business in the country. This could include measures such as
simplifying regulations and procedures, reducing red tape and corruption, and improving the
efficiency and transparency of government institutions.

Write your answer for Part B here.

To infuse cash/liquidity into the market, the Reserve Bank of India should pursue an
expansionary monetary policy. The RBI can control the flow of money in the economy by using
the tools listed below

1. Open market operation entails buying government bonds on the open market and injecting
cash into the economy.

2. Repo rate - The interest rate at which banks can borrow money from the RBI. During a
recession, the RBI will lower its repo rate, making it easier for banks to borrow more from the
RBI and thus making public loans more affordable.

3. Reverse repo rate - The reverse repo rate is the interest rate that the RBI will pay to banks
that deposit funds with the RBI. During recessions, the RBI will lower the reverse repo rate to
encourage banks to deposit less with the RBI, increasing liquidity and injecting cash into the
economy.

4. Cash reserve ratio - This is a ratio set by the RBI that requires all banks to keep a minimum
cash reserve. During recessions, the RBI reduces the cash reserve ratio, freeing up surplus
cash to inject into the economy.