Name Shivam gupta

Question 1

The phenomenon that involves such joint decision-making is known as "Collusion." Collusion
occurs when multiple firms or entities in an industry coordinate their actions to maximize their
joint profits. In the case of OPEC, oil-producing countries come together to collectively
manage the supply of oil. The advantages of collusion include price stability and the ability to
control and influence market prices. However, disadvantages include the potential for
conflicts of interest among member countries and the risk of antitrust regulations or
interventions in some markets.

OPEC decided to cut the supply of oil in response to various factors, including a significant
drop in global oil demand due to the COVID-19 pandemic and oversupply in the market. The
desired outcome of the decision was to stabilize oil prices, prevent a further price collapse,
and support the revenues of member countries heavily reliant on oil exports.

Before the supply cut, the oil market was in a situation of oversupply, with the supply curve
shifting to the right, causing a surplus of oil. This led to a drop in oil prices and an excess of
oil on the market. After the decision to cut supply, the supply curve shifted to the left, reducing
the supply of oil. As a result, oil prices stabilized or increased, and the market moved closer
to equilibrium, with reduced excess supply.

OPEC operates in an oligopolistic market structure. The key features of an oligopoly are:

1. A small number of large firms or entities dominate the market.

2. Firms have significant market power, allowing them to influence prices and output levels.
3. There are interdependence and mutual strategic interaction among firms.
4. High barriers to entry make it difficult for new firms to enter the market.

OPEC consists of a limited number of major oil-producing countries that collectively control a
substantial portion of the world's oil reserves. These countries, such as Saudi Arabia, Russia,
and the United Arab Emirates, have substantial market power and can impact global oil prices
through their production decisions. They also coordinate their actions to manage the supply of
oil, making it a classic example of an oligopoly.

Question 2
 If each article brought in an ad revenue of €375, and the business was operating at the profit-
maximizing level of output, it was producing 9 articles per month. The total profit can be
calculated as follows:

Profit per article = Ad revenue per article - Wage per journalist = €375 - €3000 = -€2625 (Loss
per article)

Total profit = (Profit per article) x (Number of articles) = -€2625 x 9 = -€23,625

Conceptually, the profit-maximizing level of output is where the marginal cost (in this case,
the cost of producing an additional article, which is €3000, since the wage of one journalist is
€3000) equals the marginal revenue (the additional revenue from selling one more article,
which is €375). This balance minimizes losses or maximizes profits.

After the COVID-19 lockdown, when ad revenue per article reduced to €250, and fixed costs
(office and utilities) were eliminated, the business should aim to maximize profits by
producing more articles. To do so, it should employ as many journalists as possible.

The business should not fire any journalists; instead, it should employ more. Firing journalists
would reduce the capacity to produce articles, leading to a suboptimal profit-maximizing level.
By employing additional journalists, the business can produce more articles and increase total
profits.

The new total profit, considering the reduced ad revenue and eliminated fixed costs, can be
calculated as follows:

New profit per article = Ad revenue per article - Wage per journalist = €250 - €3000 = -€2750
(Loss per article)

Total profit (new) = (Profit per article) x (Number of articles) = -€2750 x 10 = -€27,500

Conceptually, the business should aim to maximize profits by increasing the number of
journalists employed, as long as the additional revenue from producing more articles exceeds
the cost of hiring an additional journalist.

Question 3

A country like India would experience "Cyclical Unemployment" as a result of the pandemic.
Cyclical unemployment occurs when economic downturns, such as a recession or pandemic,
lead to a decrease in the overall demand for labor. In this case, businesses reduce their
workforce or temporarily close down due to reduced economic activity, resulting in job losses.
This type of unemployment is directly related to fluctuations in the business cycle.
 The pandemic would lead to a "Demand-Pull Recession." A demand-pull recession occurs
when a significant drop in aggregate demand (total spending in the economy) leads to a
recession. In this case, the pandemic causes a sharp reduction in consumer spending,
business investments, and international trade, resulting in a decline in overall demand for
goods and services.

Due to the pandemic, aggregate demand (AD) in India would decrease because of reduced
consumer spending, business investments, and exports. At the same time, aggregate supply
(AS) would also be affected as businesses face operational disruptions and reduced
production capabilities. These two phenomena would lead to a decrease in both AD and AS.

The decrease in AD would be due to factors like reduced consumer confidence, increased
savings, and lower business investments. The decrease in AS would result from factors like
supply chain disruptions, labor force shortages, and government-imposed restrictions on
businesses.

In this situation, the AD/AS curves would behave in the following manner:

1. Aggregate Demand (AD) Curve: The AD curve would shift to the left due to reduced
consumer spending and business investments. This shift would lead to lower overall demand
in the economy.

2. Short-Run Aggregate Supply (AS) Curve: The short-run AS curve would shift to the left due
to supply-side disruptions caused by the pandemic. These disruptions could include factory
closures, labor shortages, and difficulties in sourcing raw materials.

3. Long-Run Aggregate Supply (AS) Curve: In the long run, the AS curve might adjust, but it
could still be impacted by factors like changes in labor force participation, technological
advancements, and government policies.

Overall, the behavior of the AD/AS curves would lead to a period of economic contraction,
reduced output, and potentially higher unemployment levels.

Question 4

After such a crisis, the Indian government should adopt expansionary macroeconomic
policies to stimulate economic recovery. Key policy measures include:
1. Fiscal Policy: Implement government spending programs to boost infrastructure projects,
healthcare, and social support systems. This includes increasing public investments and
expanding social safety nets to support vulnerable populations.

2. Monetary Policy: The Reserve Bank of India should lower interest rates to encourage
borrowing and investment. Additionally, the central bank can engage in open market
operations to inject liquidity into the financial system.

3. Regulatory Measures: Ease regulatory barriers and offer incentives to businesses to

promote job creation and investment.

4. Trade Policy: Promote international trade to enhance exports, providing economic

opportunities and foreign exchange.

5. Public Health and Healthcare Investments: Prioritize healthcare infrastructure

improvements and pandemic preparedness to safeguard public health.

6. Education and Reskilling: Invest in education and reskilling programs to improve workforce
readiness.

7. Infrastructure Development: Accelerate infrastructure

development, including transportation and communication networks.

8. Support for MSMEs: Provide support and credit facilities to Micro, Small, and Medium
Enterprises (MSMEs) to ensure business continuity.

These measures aim to increase aggregate demand, stimulate economic growth, and reduce
unemployment levels, while also addressing the specific needs and challenges brought about
by the pandemic.

The Reserve Bank of India (RBI) should adopt expansionary monetary policies, specifically to
address the financial and monetary aspects of the crisis. Key policy measures include:

1. Lowering Interest Rates: The RBI should reduce policy interest rates to make borrowing
more attractive for businesses and individuals, thus stimulating investment and consumption.

2. Quantitative Easing: Engage in quantitative easing to purchase government and private

securities, thereby injecting liquidity into the financial system and supporting credit availability.

3. Repo Rate Reduction: Lower the repo rate to encourage banks to borrow from the central
bank at lower interest rates, which can then be passed on to consumers.

4. Regulatory Support: Provide regulatory support to banks, allowing them to restructure

loans and extend credit to businesses affected by the crisis.

5. Enhanced Liquidity Management: Monitor and manage liquidity in the banking system to
prevent liquidity crises and ensure the smooth functioning of financial markets.
6. Exchange Rate Management: Ensure exchange rate stability to support international trade
and external financial stability.

7. Coordination with Fiscal Policy: Coordinate efforts with the government's fiscal policy to
ensure a comprehensive approach to economic recovery.