Name Gufran Khurshid

Question 1

Write your answer for Part A here

Cartel and its Collusion

As OPEC is an international Cartel that that restricts oil production to maintain high oil
prices. The collusion was to cut the production , due to collapse of demand during
covid.

Advantages-

1. Shared Research & Development - Members of cartel doesn’t need huge

investments for research as its carried out and output is shared collectively.
2. More Power with Influence on price - As supply can be controlled the price
can be controlled within range irrespective of external
factors(political,war,pandemic etc) with elimination of competition.

Disadvantages-

1. Limited Customer Choice - Customers don’t have much choice .The options
of price, quantity & quality are limited.
2. No Influence on Price - Customer cannot influence price as they are
controlled by cartels collectively

Write your answer for Part B here.

Cut of Oil Supply - Supply was only under their control , they cut the supply to
influence the price which was falling down. They wanted to save on oil storage cost.

Desired Outcome- As the demand collapsed , it was imperative to restrict the fall in
priice of oil further .Moreover OPEC wanted more market power and control of
decision on pricing.

Change in the supply and demand curves of oil and the subsequent market
equilibria -
As the graph depicts there was sudden collapse in oil demand, this shifted the
demand curve towards extreme left and down(both shift indicates collapse) . This
result in very low equilibrium price for oil.

Changes after the supply reduction decision - As we can see from the graph, after
the reduction in supply ,the supply curve moved up . Consequently the price which
was reduced because of decreased demand was covered because of a decrease in
supply.Hence the equilibrium point didn’t shifted far from where it was prior to covid
outbreak. Because of this OPEC was able to stop the decline in price .

Write your answer for Part C here.

OPEC operates in Oligopoly market structure. As the member countries of opec

(Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the
Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuel)
produces similar product crude oil.

Feature of Oiligopoly model -

1.Oiligopoly model have few major sellers with no upper limit in number of firms.
2.Actions of one firms has effect on rest on others.
3.The goods/services produced are of similar type .
4.Major firms in many sector forms a cartel to crub the competition. e.g Telecom
sector, Oil Sector
Question 2

Write your answer for Part A here.

Firm must be producing 92 articles , as we can see from graph this is where the
marginal cost and marginal revenue curve meets.

Total profit at this point would be € 2500.

For finding profit maximising level of output , we need to calculate -

Marginal Cost = (Change in Total Costs) / (Change in Quantity)

where Total cost =Fixed Cost +Variable cost

Marginal Revenue =(Change in Total Revenue) / (Change in Qantity)

where Total Revenue =unit produced * unit cost

As we draw the graph which indicated the point where the marginal cost and
marginal revenue curve meets, that is the point of maximum possible profit.So the
number of journalist which will deliver maximum possible profit is 8 and producing 92
articles

Write your answer for Part B here.

Post covid , I have to fire 4 journalist out of 8 journalist, as shown in graph above
considering maximizing profit

Total net profit at this point would be € 1500.

We need to recalculate for finding new maximum possible profit-

Marginal Cost = (Change in Total Costs) / (Change in Quantity)

where Total cost =Fixed Cost +Variable cost

Marginal Revenue =(Change in Total Revenue) / (Change in Qantity)

where Total Revenue =unit produced * unit cost

we can see in graph , now marginal revenue has reduced and marginal cost has
shifted to left, so the new number of journalist which will deliver maximum possible
profit is 4.

Question 3

Write your answer for Part A here.

Covid pandemic brought Cyclical unemployment in India . As this kind on

unemployment is driven by demand in market, covid collapsed demand in
market.Consequntly , firms has to reduce the supply and let the workforce go.

Apart from this, as covid spanned the year, it also brought Seasonal unemployment,
which relies on seasonal factors and many such sectors was affected e.g tourism and
farming.

Write your answer for Part B here.

As it can be seen in above figure , India faced V-shaped recession. Indian economy
suffered a sharp but brief period of economic decline with a clearly defined
trough.This can be attributed to sudden lockdown throughout the country.This
sudden lockdown caught people off guarded,especially all business including grocery
and pharmacy. Although this was followed by a strong recovery.

Write your answer for Part C here.

Because of pandemic , the demand in Indian economy shrinked alot. As a result, the
aggregate demand AD decreased and demand curve shifted towards LEFT.This
reprsents fall in the economic activity in the country. Moreover the aggregate supply
AS also shrunk, so the supply curve shifted towards RIGHT. Workers were ready to
work for low wages and business were trying to get rid of product by cutting cost.
Write your answer for Part D here.

During the time of recession,the Aggregate Demand AD curve shifts towards left AD1
indicating decrease in demand. And the Aggregare Supply AS curve shifts towards
right ASsr1. Consequently the creating a new price equilibrium P3 which is lower
than the old price equilibrium P1.

Question 4

Write your answer for Part A here.

Goverment needs to take Fiscal Policy . As these policies have higher multiplier , it
shapes economy.
As defined here GDP=C+I+G+(X-M)
G = Govt Spending
Increase in Govt. spending is major part and will boost the GDP.
Indian Government should implement these policy by increased spending and tax cut
-
Tax Cut -Tax cut will increase disposable income of people which will give purchase
power , thus creating increase in demand.
Increased Spending - Spending in primarily in Healthcare , education , defence etc
and on building infrastructure will again create jobs and will subsequently increase
demand.
This will stimulate the economy and will increase aggregate demand . Although these
policies are political in nature and involves many stakeholder , and typically takes time
to implement. But pandemic as a economic shock demands immediate
implementation.

Write your answer for Part B here.

Reserve Bank of India needs to take Monetary Policy . As its the central bank of
India and acts as a primary actor, it can influence the investment , savings and
spending decision of consumers and business.

Quantitative easing (QE ) - RBI can buy predetermined amounts of Govt. bonds or
other financial assets, so it can inject money into the economy to expand economic
activity. QE will lead to decrease in interest rate as banks have more liquidity.

Expansionary monetary policy- RBI can reduce interest rates, which inhibit saving
and outflow the money in market leading to increase the money supply to. Also
increase the quantity of loans will exhibit same behaviour. This will shift aggregate
demand to the right.