Name ASISH SABAT

Question 1

Write your answer for Part A here.

OPEC is an Oligopoly market structure, if there are few firms in the market and they come
together to take decisions jointly for the price & Product output then this phenomenon is
known as Collusion. Collusion is a way to earn high profits in the market at consumer
expenses and reduce the competition in the market.

Advantages:

i.) Restrict competition so that no other player can join and play with the prices. ii.)
Increasing the joint profit

iii.) More decision making and more control about the market

iv.) Costs of storing as the demand is decreased

Disadvantages:

i.) Collusion leads to creation of Monopoly

ii.) Competition gone down

iii.) Price will start rising

iv.)There is less decision making in terms of quality, quantity & choice.

Write your answer for Part B here.

There are a lot of countries to go on lockdown which caused the demand for oil and its prices
to fall continuously. The negative demand shock resulted for surplus of oil. As result, OPEC
decided to cut the supply of oil main because of a.) Fall in demand b.) in history never
happened like of oversupply, as this resource is rare in our earth. c.) Low prices because of
the oversupply.

Desired outcome of them is, is their ability to control or limit the price from falling down
further and another desire is to saving the cost of storage and more stability in the market and
having power for decision making.

Demand Curve of the oil: The demand for oil fell due to the lockdowns for which the Demand
curve has a left ward shift (Demand curve shifted towards left) and the prices to fall.
Supply Curve of the oil: Now OPEC’s took decision to reduce the supply then actually there
is in fall in supply, decision to reduce supply is leftward shift in supply and then the demand
increased slightly picking up in june july month.
Equilibrium: The equilibrium point shifts down on the supply curve, where the new Price
equilibrium and equilibrium quantity meet.

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 (D2) and supply would remain th
same since at this time, the decision to cut supply was not made.

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 (S1) and the new equilibrium increased the price and
slight rightward shift in the demand curve (D1) towards the end of the year.

Write your answer for Part C here.

Oligopoly is the market structure does the OPEC operates in.

Key features of Oligopoly Market structure is: a.) A Few Firms with Large Market Share
(In oligopoly, there are few large firms.) b.) High Barriers to Entry (The main reason for
few firms under oligopoly is the barriers, which prevent entry of new firms into the
industry.) c.) Higher Prices than Perfect Competition d.) Interdependence (means the
 action or reaction of one company may affect the action to others, so they have to very
careful while taking decisions) e.) Indeterminate Demand Curve (Under oligopoly, the exact
behavior pattern of a producer cannot be determined with certainty. So, demand curve
faced by an oligopolistic is indeterminate (uncertain).

Question 2

Write your answer for Part A here.

92 Articles was the business Producing.

2500 is the total profit because at this level marginal cost equals to marginal revenue and
Profit Maximization takes place.

Profit Maximization is the level where Marginal Cost (MC) becomes equal to Marginal
revenue(MR), and going beyond this level reduces the profit.

Marginal cost will be produce when the change in Total cost will be divided equally with
change in quantity (i.e. the articles)

Marginal Revenue will be produces when the change in total revenue will be divided equally
with the change in quantity.

And as said earlier when marginal costs equal with Marginal Revenue Profit maximization
took place and according to the calculation here the profit maximization took place when 8
journalists was there and 92 articles was produce because at that time MC=MR=375
 Write your answer for Part B here.

4 journalists I would have to fire because earlier 8 journalists were giving me profit
maximization but now only 4 so I will fire the other 4 journalists by keeping consideration for
profit maximization

1500 is the total profit.

I have to fire journalist because after profit maximization the extra journalist increases just
my marginal cost due to which my company is going to be in loss, so I have to fire the extra
journalists.

My article values is also decreased comparing to the earlier value, and now if I will keep on
adding journalist to my company which doesn’t add any value to my firm and rather going in
loss and shutdown of the company , I have to take decision at correct time by seeing my profit
maximization in maintain to benefit my company

Question 3

Write your answer for Part A here.

Cyclical unemployment is the unemployment would a country like India experience from such
a pandemic because Cyclical unemployment is caused by a fall in aggregate demand which
pushes the firms to lower their production. By which AD (Aggregate Demand) decreases and
when AD decreases, inflation decreases and the unemployment rate increases.

AD (Aggregate demand actually depends on (Consumption expenditure), I(Private

investment expenditure) , G(Government expenditure) & the last is the X (Net
exports)which is the difference between imports & exports, and here C+I+G+X=GDP and if
GDP decreases recession occurs and if recession occurs because of slowdown in Aggregate
demand then a large number of unemployment will reflect automatically.

Assume that for some external factor the aggregate demand curve has shifted leftwards from
AD1 to AD2. This shift brought the economy to a lower level of output. The horizontal gap
between the LRAS curve and the AD2 curve is what is considered to be cyclical
unemployment.

For Example: A worker loses her job because the economy begins to enter a recession.
Cyclical unemployment is the short-run fluctuation that occurs as a result of booms and
recessions.

Write your answer for Part B here.

A recession is also believed to be signaled when businesses cease to expand, the GDP
diminishes for two consecutive quarters, and the unemployment rate rises.

Here both Demand shock and supply shock recession would cause for the recession, but
Demand shock recession would be the primary caused by such a pandemic, Demand shock
is a surprise event that can lead to a temporary increase or decrease in demand for goods or
services. An example of a negative demand shock would be a global pandemic. An example of
a positive demand shock would be government stimulus checks and relaxed monetary policy in
response to the pandemic. but here negative demand shock has occurred in this decision.

In this respect, the Great Depression occurred mostly because of a negative shock to the
aggregate demand curve, not the aggregate supply curve. Consumers become worried about
job loss and buy fewer goods and services than expected.

Write your answer for Part C here.

AD is the total aggregate quantity or output that is willingly bought at a given level of prices
and AS (aggregate supply (is the total supply of goods & services produced in an economy.
A larger affect in aggregate Demand(AD) has took place in India in Covid 19 situation
To know about any country's growth or GDP we have to look out for 3 factors that is
Output, employment and inflation and when there is recession then the definitely output
will go down and the unemployment numbers will go up.

There was a fall in aggregate demand in left ward shifts from AD2 to AD1 and because of
there is a recession and aggregate demand shifted towards left , there we have fallen in the
output from Y2 to Y1(GDP went down) it has also lowered the prices which came from P1 to
P2, so here the main driver of this recession is the AD(aggregate Demand) due to which fallen
in price & output took place, and if there is a aggregate supply shock recession takes place ,
then left ward shift supply takes place because of which it is lowering the growth , even if it is
a supply also, the GDP gone down, but here in supply recession the price will increase.

Write your answer for Part D here.

In this situation AD (Aggregate demand) curves shifts towards the left ward shifts because of
which the output will get affected and in a fallen state it will be and the price will also be
 decreased which creates the scenario of Demand led recession and when we talks about the
AS(Aggregate Supply) curves shifted towards leftwards in this situations then output will fall
but the prices will increase drastically like anything which will led the Supply led recession.
GDP is going to fall in both the cases.

Decrease in Price led Demand led recession and Increase in price led Supply led recession.

Question 4

Write your answer for Part A here.

Fiscal policy should be adopting by Indian government after such a crisis. There are only
two tools under Fiscal policy, one is the taxation and the other one is the expenditure, which
means Government has the power the right to tax on people and government has the power to
spend, these are the two tools under fiscal policy, For example if there is a recession and
people are not coming out from their houses, not borrowing, not doing any expenditure, and
they do not want to do any extra investments, so basically there is less money is flowing in the
system, now the government will say this type of activity is slowing down the economy, LESS
MONEY= LESS ECONOMIC ACTIVITIES so at that time government will apply less tax
on people and do the expenditure, since we are into recession, it will reduce the taxation.

Government has to more focus on expansionary Fiscal policy to rectify the recession and to
grow the economy again, for example Indian government has done the GARIB KALYAN
YOJNA: The Pradhan Mantri Garib Kalyan Yojana / Package is a comprehensive relief
package of Rs 20 Lakh Crore Yojana for the poor to help them fight the battle against
Corona Virus. This was announced in March 2020, to reach out to the poorest of the
poor, with food and money in hands, so that they do not face difficulties in buying
essential supplies and meeting essential needs.
The two major examples of expansionary fiscal policy are tax cuts and increased
government spending. Both of these policies are intended to increase aggregate demand
while contributing to deficits or drawing down budget surpluses.

Write your answer for Part B here:

Monitory Policy should the Reserve Bank of India should adopt after the crisis.

Monitory Policy is policy under which the actions undertaken by a nation's central bank to
control money supply and achieve sustainable economic growth, keep unemployment low,
and maintain foreign exchange (forex) and inflation rates in a predictable range.

Monetary policy can be broadly classified as either expansionary or contractionary.

The Idea here for the RBI is to control the liquidity, a constant money flow to sustain the
economy to run it in a smooth manner is the main idea here by RBI, we don't need less than
adequate, we don't need more than adequate, let’s take an example that there is a recession
and less than adequate money is there, now the RBI will say to increase the liquidity, they will
use the tool to increase the liquidity are like OMO(Open Market Operations) the selling and
purchasing of the treasury bills and government securities by the central bank of any country
in order to regulate money supply in the economy. Cash Reserve Ratio (CRR) is the share of
a bank’s total deposit that is mandated by the Reserve Bank of India (RBI) to be maintained
with the latter as reserves in the form of liquid cash. Direct lending is a form of corporate
debt provision in which lenders other than banks make loans to companies without
intermediaries such as an investment bank, a broker or a private equity firm. Reserve
requirements are the amount of funds that a bank holds in reserve to ensure that it is able to
meet liabilities in case of sudden withdrawals.

RR (Repo Rate): The Rate at which RBI lends to commercial banks

RRR (Reverse Repo Rate): The rate at which the RBI borrows from the commercial banks