Q. Name and describe the phenomenon which involves such decision-making?

- Collusion is the phenomenon which involves such decision making. A group of firms come together
to collude to control the supply and calibrate the price rate to maximize profit is called a cartel.

Q. What made OPEC decide to cut the supply of OIL? What was the desired outcome of the
decision? What was the change in the supply and demand curves of Oil and subsequent market
equilibria? Analyse the changes both before and after the decisions to reduce supply?

- Due to steep fall in demand of oil, impacting the price negatively caused the OPEC to decide to cut
the supply of oil. Since it is a major source of revenue for these countries, reducing the supply will
contain the price to fall and reduce significant loss of revenue during the covid-19 health crisis which
restricted travel and business.

- The desired outcome the decision was to halt the price of oil from falling further. The other desired
outcome would be to have political stability and to have more control, decision-making power in the
global oil market.

Fig 1

Fig 2
 Before the decision to reduce supply, demand curve had a leftward shift as seen in above Fig 1 due
to low demand for oil and there was a rightward shift in the supply curve, as seen in Fig 2, as OPEC
was still supplying oil. After the decision there was a leftward shift in supply, in Fig 3, as the supply
has reduced, as the covid-19 restriction eased down and demand gradually increased, there was a
rightward shift in the demand curve, in Fig 4. This led to increase in prices again for oil.

Fig 3

Fig 4

Q. What market structure does OPEC operate in? What are the key features of such market
structure?

- OPEC operates in an oligopoly market structure.

- Key features of such market structure are

1. There are a few large firms that dominate the market.

2. A product can be identical, as seen in the example of telecommunication providers, or differentiated,
3. Entry into the industry is restricted because of the existence of big players in the market.

Q2. Italian News website

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Q. What type of unemployment would a country like India experience from such a pandemic? Please provide
an explanation? 200 words.

- Aggregate demand driven economic downturn induced by pandemic and decrease in profit motive of firms,
reduction in supply, this leads to demand deficient unemployment (sometimes called cyclical unemployment).
This will reduce the spending power of people and thus negative cycle begins. Find what type of
unemployments happen due to fall in aggregate demand.

Q. What type of recession would be caused by such a pandemic. Provide an explanation. 200 words.

- Aggregate Demand led recession which drove the recession and supply shock recession.

Q.