Name Prince Kumar Singh

Question 1

Joint decision-making such a

group is termed as a
Collusion. Collusion in
Oligopolies
involves joint decision
making by few players in the
market to influence output
price of a
product. Oligopoly arises when
a small number of large firms
have most power over the sale
in the industry.
Joint decision-making such a
group is termed as a
Collusion. Collusion in
Oligopolies
involves joint decision
making by few players in the
market to influence output
price of a
product. Oligopoly arises when
a small number of large firms
have most power over the sale
in the industry.
Joint decision-making such a
group is termed as a
Collusion. Collusion in
Oligopolies
involves joint decision
making by few players in the
market to influence output
price of a
product. Oligopoly arises when
a small number of large firms
have most power over the sale
in the industry.
Answer 1A:

Joint decision-making such a group is termed as a Collusion. Collusion in Oligopolies

involves joint decision making by few players in the market to influence output price of a
product. Oligopoly arises when a small number of large firms have most power over the sale
in the industry.

Advantages of Collusion are as follow-

 It can manipulate and increase prices or it can reduce cost in the market
 It could result in price war and increased consumer surplus
 Lead to more investment in research and development
 Steady supply of oil depending on the market scenario

Disadvantages of Collusion are as follow-

  New firms can be discouraged to enter the market.
 There is a potential loss of economic welfare
 It leads to high prices for consumers leading to decline in consumer surplus.
 Reduction in consumer choices because the demand ^ supply is determined by the
collusion.

Answer 1B:

The demand of oil shrunk down due to the lockdown that lead to surplus of oil and increased
cost of storage. Traders were paying money to get rid of oil and shortage of storage space
forced OPEC to cut supply.

Desired outcome of the supply cut was to increase oil price which has fallen into negative due
to record surplus because of 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 and
supply would remain in the same position, the decision to cut the supply was not made. This
would lead to fall in the price and created surplus in the market.

Change in demand and Supply Curve after the decision

After the decision to cut the supply, the oil price would slightly increase however, of course
not equal to before the pandemic. The supply curve will shift and the new equilibrium
increased the price and slightly rightward shift in the demand curve.

Answer 1C:

OPEC operates in an Oligopoly market. An oligopoly is a market state where there are limited
number of suppliers / products / distributors of a certain product. Thereby giving an edge to
such group to determine the price as well as the supply of the product in a manner that their
interests are safeguarded. An ideal example of an oligopoly is the Organization of the
petroleum Exporting Countries (OPEC) where a limited number of countries (13 Countries)
have dictated oil production and prices to the global economy.

Key Features of such a market are:

 Only few large firms dominate the market

 The product supplied can be identical like commercial airline and differential like
soft drink industry.
 Restricted entry into the industry due to the existence of big players in the market.
 Interdependence within the players in the market like change in price of Pepsi
would affect Coke.

Question 2

Answer 2A:

92 Articles as this is where marginal cost is equal to marginal Revenue.

Total profit = (Total revenue – Total cost)

€2500 = (34500-32000)

To reach at profit maximizing output, following steps were followed-

 Identify fixed and variable cost and add both to arrive at total cost for each level of
output. Calculate marginal cost at each level by dividing change in total cost by
change in output.
 Identify revenue at each level by multiplying price of each article and number of
articles
 Calculate marginal revenue at each level by dividing change in revenue by change
 in output
 Finally, subtract marginal revenue and marginal cost to arrive at change in price.

When the change in price, at a certain output level, reaches zero. MC is equal to MR. It will
be the profit maximizing output.

Answer 2B;

The business would have to let go 4 employees as it if following profit maximization. The new
profit maximizing level has reduced to 54 articles per month as opposed to 92 articles
previously. Thus, this leads to 4 extra employees as per the current situation.

The new total profit is EUR 1,500 i.e, 13,500 minus 12,000

Reasons for the layoff of journalists are:

 The profit reduced substantially due to the decrease in price of per article from
EUR 375 to EUR 250. The decrease in profit lead to smaller Total profit i.e, EUR
1,500 than EUR 2,500 previously
 Since company’s main concern is profit maximization, the negative change in
profit would lead to extra cost and no profit. Keeping extra employees was not in
line with company’s favors.
 The difference between Marginal cost and Marginal revenue became zero at 4
journalists and 54 articles as opposed to 8 journalists and 92 articles previously.
To follow profit maximization, 4 journalists had to be fired ( 8 minus 4 journalists)

Question 3

Answer 3A:
Cyclical Unemployment is the type of employment country like India would experience due to
the pandemic.

As per the Economic Survey of 2018-19, 85% of Indian population still works in informal
sector like construction labors, car repair, grocery stores and domestic workers. This type of
employment can be considered quasi-legal in that the work is considered “legitimate” But
because it is unregulated and not covered with any contract, such a pandemic can leave these
workers out of job. When prime minister imposed total lockdown on 24th March 2020, the
small shop owners and small business suffered a shocking fall in their income leading to
letting go of most of the employees. A small short term recession lead to fall aggregate
demands. Consumer spending became limited due to the uncertainty. This increased
unemployment in daily wage workers, domestic helps, travel agencies until the later part of
the year when lockdown was slowly lifted and business slightly regained its market.
Considering this pandemic is short run, the unemployment faced due to pandemic was
cyclical.

Answer 3B:

Demand-led recession is caused by such a pandemic.

The Aggregate Demand in an economy includes Household Consumption, Investments,

Government Spending and difference between Imports and Exports. The pandemic created a
situation of unrest worldwide due to virus being unknown and deadly. The lockdown, as
necessary and helpful as it was, disrupted income for majority of the populations, Due to the
lack of income and unemployment, the demand and spending limit also reduced leading to fall
in Aggregate Demand. Fall in Aggregate Demand reduces the GDP too. Investors and
consumers now wanted to hold onto the money than spend shortening flow of money in the
economy.

Thus, this pandemic was a demand-led recession.

 Answer 3C:

In India, due to the above phenomenon, aggregate demand and aggregate supply shifted
leftwards.

Aggregate Demand shift towards left- Due to the fall of consumer spending and willingness to
invest, the Aggregate demand fell and shifted towards left. When the demand shifts towards
left and supply remains the same, the price of goods fall.

Aggregate Supply shift towards left – When the lockdown was imposed, the demand took a
sharp fall but supply remained same for some time which created surplus in the market
leading to leftward shift in the Aggregate supply curve.

Answer 3D:

In this situation. Aggregate demand curve will shift towards left due to the fall in demand

Aggregate supply curve will first shift towards left due to the surplus in the market but later in
the year will thin towards night adjusting itself with the demand and investment

Question 4

Answer 4A:

The type of macroeconomics steps Indian government should take after the crisis created by
pandemic:

Expansionary Fiscal Policies:

 Government Expenditure - In a country like India, where more than half of the
population was unemployed after the lockdown, it should introduce relief programs
like provide unemployment compensation to daily wage workers, farmers, free
 travel for migrants with no job, control basic medical charges and provide
minimum healthcare facility to impoverished
 Taxation lowering tax directly help consumers with more money in hand for
expenditure. This is a famous method applied by many democratic countries time
of crises and recession.

Answer 4B:

The type of macroeconomics steps reserve Bank of India should take after the crisis created by
pandemic:

Monetary Policies:

 Influx money - in the economy by purchasing government bonds so that population

has more money in hand to influence then to spend and create demand.
 Reduce Interest Rate - Government should reduce interest rate on borrowings to
allow consumers to take loan and spend the same again increasing demand and
flow of money in the market. It should also relive farmers and daily wageworkers
of some part of their loan, allowing delay in loan repayments by the small
businesses and unemployed  population.