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 SENJUTI SEN

Question 1

• As the pandemic was in full swing during May’2020, there were mass lockdown &
restriction in travel as well as slowdown of economic activities all over the world
which results in fall in demand of oil, now if supply of oil remain same but the demand
is decreasing that can led to fall in price of oil, which can majorly impact OPEC
financially as they also need to store the excess supply of oil which can add to their
cost, that is why OPEC decide to reduce the oil supply significantly so that they can
control the price behavior according to the then market situation.
• The desired outcome of this decision in terms of OPEC is they can control the price of
the oil & restrict the fall in the price. Less supply means demand will make the price go
higher, in this way OPEC as their economy is solely dependent upon oil price can
sustain during pandemic scenario. The consumer has the disadvantage that they need
to purchase the oil in somewhat higher price due to reduction in supply of oil.
• Before the decision, demand of oil was going down but the supply of oil was going up,
due to excess supply of oil in the market, the price of oil will go down. So, there is
rightward shift of Supply curve due to higher supply but leftward shift of Demand
curve due to less demand, Market Equilibrium tends to be lower as price is falling due
to excess supply.
After the decision, the demand may somewhat increase as there is less amount of oil
available in the market which results in somewhat increase in the price of oil. So, there
is leftward movement in Supply curve due to reduced supply due to the OPEC’s
 decision but rightward movement in Demand Curve as the demand has increased due
to less amount of oil available in the market that results in increase in oil price which
made the Market Equilibrium to go higher due to increase in price.

• OPEC operates in Oligopoly market structure.

• Key features of Oligopoly:
1. There are a few large firms/countries that dominates the market, here in OPEC, some
of the large oil exporting countries joined hands to form OPEC so that they can
control the oil market globally.
2. The product needs to be identical, in this case Crude oil is the product, that OPEC
countries operates with.
3. The entry to this industry is restricted due to existence of big players in the market in
this case it is very difficult for any new countries to be a part of OPEC as almost all of
the large oil exporting countries are part of OPEC already.

Question 2

• The business was producing 92 articles per month.

• The total profit was €2500.
• At profit maximising level of output, the Marginal Cost (MC) needs to be equal to
Marginal Revenue (MR), therefore as per our calculation, when the business is having
8 Journalists working, No. of articles it is producing was 92 per month, Fixed Cost was
€8000 & Variable Cost was €24000, Total Cost was €32000, Total Revenue was
€34500, The Marginal Cost was €375 similarly Marginal Revenue was €375 at this
level. Therefore, it is the level in which the business is working at profit maximising
level of output.

• I have to fire 4 journalists in order to working at profit maximising level of output.

• The new total profit is €1500.
 • I need to fire 4 journalists in order to work at profit maximising level of output, Due to
pandemic, my fixed cost is now Nil, as everyone is working from home, but my ad
revenue has also decreased, therefore to work at profit maximising level of output, if I
work with 4 journalists now instead of 8 journalists, No. of articles produced will be 54
per month, Fixed Cost is NIL & Variable Cost is €12000, therefore Total Cost is
€12000, Total Revenue is €13500, The Marginal Cost at this level is now €250
similarly Marginal Revenue at this level is €250, therefore as Marginal Cost is equal
to Marginal Revenue working with 4 journalists, unfortunately, I need to fire 4
journalists from earlier 8 journalists in order to work at profit maximising level of
output.

Question 3

During pandemic, country like India, experience Cyclical Unemployment or Demand-

Deficient Unemployment due to fall in Aggregate Demand, due to fall in aggregate demand,
firms employ fewer workers as it leads to fall in economic output, the consumption tends to get
lower during pandemic, purchasing power of the people also gets lower, which all leads to
lower aggregate demand results in short run unemployment.

Initially, at the beginning of the pandemic, it was like Supply Shock Recession, as most of the
countries closed their borders which led to shortage of supply of goods in the market but
eventually as pandemic affected all the sectors of economy during its prolonged period it
became a recession led by fall in aggregate demand, due to rise in unemployment, fall in
purchasing power, fall in overall consumption, fall in industrial spending resulting in fall in
GDP.

Question 4

Govt. of India should adopt expansionary fiscal policy after such a crisis. As there is a fall in
aggregate demand due to pandemic, to stimulate the economy, the Govt. needs to first stand up
& raise their spending in order to increase the aggregate demand. We have seen Govt. of
India announced a stimulus package of 20 lac Crore in the name of “Atmanirbhar Bharat
Abhiyan” on 12th May’2020 by Prime Minister Sri Narendra Modi which is equivalent 10% of
India’s GDP, which covered almost all the sectors of the economy. The basis of the
announcement was to fuel the economy to kick start post pandemic & revive the economy to
pre pandemic level or even better. The said package targeted MSME sectors, which employ a
large section of the population, giving them collateral free loans, a special fund for MSME’s
has been set up, payment of dues to MSME by the govt. bodies within 45 days, reduction in
TDS & TCS rates, moreover change in definition of MSME by legislation etc.

As India is an agriculture-based economy, the govt. also provided special incentives to this
sector like concession credit to farmers by Kisan Credit Card, set up of Agri Infrastructure
Fund to facilitate smooth selling of farm goods, providing emergency working capital for
farmers through NABARD etc.

Govt. also extended support to the Migrant workers, who were deeply affected during
pandemic through free food grain supply, affordable housing complexes etc.

To help boost rural economy, govt. also extended budget of MGNREG to facilitate 100 days of
work in Rural India.

There are other various measures Govt. of India took through this policy to eventually raise
the aggregate demand in the market which will boost the economy overall.

Reserve Bank of India should adopt an expansionary monetary policy post pandemic to boost
the liquidity in the market. Due to pandemic, the income of the mass has been affected results
in less demand, less consumption. To change the course of market, the Reserve Bank of India
needs to fuel the economy by raising the liquidity in the market, we have seen RBI has reduced
CRR (Cash Reserve Ratio) so that Banks have that excess liquidity so that it has higher
lending capacity, which can provide easy loans to customers which will increase spending in
the market. Further, borrowing limits under Marginal standing facility by the Banks were
increased, so that Banks can have extra liquidity up their sleeve. RBI also announced
moratorium facility to all types of loans for initially 3 months starting from March’2020
further extended to another 3 months to boost spending & consumption in the market.