COURSE: BUSINESS ECONOMICS

PROJECT: COVID-19: The Global Shutdown

Instructions for the submission:
● Please maintain the following: Font - Times New Roman, Font Size - 12, Line Spacing -
1.5

Name Tanishq Goyal

Question 1

As the Covid 19 was spreading worldwide it had negatively affected the economic activities
all around the world and also led to fall in the demand for oil and other fossil fuels. This led to
fall in the prices of fuel world wide as the demand was very low. In an effort to contain the
falling prices OPEC decided to cut the oil supply. The outcome was not at all favorable, the
benchmark fell into negatives implying people wanted to get rid of the oil they already had,
traders were worried that US will run out of the oil storage space and it was feared that the
agreement would be insufficient in protecting markets from the surplus that had been produced
due to lack of demand due to the pandemic. Due to the pandemic as the demand for the fuels
decreased it will lead to a leftward shift in the demand curve and since the supply was
restricted to a lesser quantity leading to a leftward shift for the supply curve as well. Before the
restriction decision only the demand decreased and it led to a leftward shift in the demand
curve only. This led to a lower equilibrium price for the oil and since the demand was already
getting low the equilibrium quantity also decreased with the same. And after the decision both
the demand curve and supply curve shifted left it aimed at increasing the equilibrium price
with the decreasing equilibrium demand.

OPEC is an example of Oligopoly market. Some features of Oligopoly market are it has few
sellers and the sellers are interdependent. There are many buyers in the market for the few
sellers. Barriers to entry in this kind of market are very high and it is not easy for anyone to
enter such market. And the cost of exiting the market are also very high due to huge
investments and restrictions.

Question 2

The business manufactured 92 articles. The company incurred a loss of USD 9000. The profit
maximization unit is the unit where MR = MC and that is at 92 units when number of
journalists are 8

For maximizing profit 4 journalists will have to be fired. New profit is USD 5000. I had to fire
the journalist to maximize profits after 4th journalist MR becomes less than MC leading to
lesser profits as the cost for making new articles is higher than profits earned from them.

Question 3

During the pandemic India experienced Cyclical unemployment. Cyclical unemployment

occurs with changes in economic activity over the business cycle. During an economic
downturn like Covid 19 pandemic, a shortfall of demand for goods and services results in a
lack of jobs being available for those who want to work. Businesses experiencing weaker
demand might reduce the amount of people they employ by laying off existing workers, or
hiring fewer new workers. As a result, people looking for work will also find it harder to
become employed. The opposite situation occurs when demand strengthens.

The type of recession India faced is demand led recession. This recession means demand in an
economy being reduced due to a specific reason. Like discussing about Covid 19 it was a
major reason that the demand of goods decreased majorly impacting the whole demand and
supply chain of the market. The households wanted to save more money and as there was a
pandemic that means they are afraid of losing their jobs. Therefore pandemic had severe
effects around the world causing economic instability and recessions.

Question 4
The Covid 19 pandemic inflicted two kinds of shocks in India: a health shock and an economic
shock. Due to the measures adopted to prevent the spread of the Coronavirus Disease 2019
(Covid-19), especially social distancing and lockdown, non-essential expenditures are being
postponed. This is causing aggregate demand to collapse across the globe. In addition to the
demand reduction, there will also be widespread supply chain disruptions, as some people stay
home, others go back to their villages, imports are disrupted, and foreign travel is stopped.
This will negatively affect production in almost all industries. The first measure must be to
protect the workers in the informal sector, who will be badly affected, and yet have little
savings to tide them over the shock. Policies such as MGNREGA help in the same. The public
sector banks should be provided with additional capital, to give them a larger cushion to fall
back on in case they make lending mistakes given the prevalent uncertainty. It might be harder
for private banks to raise capital from the market given that they are already experiencing
declines in share prices. The government could also improve corporate cash flows by speeding
up GST refunds and delaying payments of corporate taxes. Small businesses will be needing
help financially to survive so providing right subsidies to them will also help.

Some of the steps that can be taken by RBI to overcome the crisis are increasing liquidity in
the market as The need of the hour is to provide credit to ailing businesses to help them
survive during the pandemic while facing extreme losses. Second is Repo-rate cut. The
decrease in repo rates is to aim at bringing in growth and improving economic development in
the country. Consumers will borrow more from banks thus stabilizing the inflation. A decline
in the repo rate can lead to the banks bringing down their lending rate. Third step can be
optimum utilization of RBI reserves. Given the global disruptions due to the unprecedented
situation, RBI may also have to take some unconventional measure — to provide liquidity
support to Indian banks for their overseas operations, and open a re-finance window for
medium and large enterprises to help them meet their debt obligations.