Name Tarun Singh Chauhan

Question 1

1A - The phenomenon which involves such joint decision-making is known as collusion, collusion takes
place in oligopoly market where few firms control the market prices and output. OPEC is organisation
where these member nation are part of this collusion.

Advantages of collusion

1.Firms come to together to utilise maximum in hard time (recession etc) where they can control
price and supply in their favor.

2.Reduces competitiveness among firm and avoid competitive sales and agreement with trading
nation.

Disadvantage of collusion

1.Buying nation will have to pay high amount as set by collusion’s member.

2.Buyers can’t create surplus qty in advance.

1B - OPEC cut the supply of oil because of below reason:

1.The demand of oil went down due to lockdown whic leads to surplus of oil and increased cost of
storage.

2.Shortage on storage space forced OPEC to cut supply.

Desired outcome of the decision is to increase oil price which has fallen into negatives due to surplus
created due to lockdown.

Change in demand and Supply Curve before the decision: Due to fall in oil demand, the demand
curve would shift to the left and supply would remain the same since at this time since the decision to
cut supply was not made. This would lead to fall in the price and create surplus in the market as per
below.
 Change in demand and Supply Curve after the decision: After the decision to cut the supply, the
oil price would slightly increase but 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).

1C - OPEC operates in few markets which are part of oligopoly. Oligopoly is a market where limited
number of suppliers / producers of product. They determine the price as well as supply of the
product in a way to safeguard their interest. example of an oligopoly is Petroleum Exporting
Countries (“OPEC”) where limited number of countries have control on oil production and prices.

Key features of such a market are:

1.Few firms dominate the market.
2.Tuff entry into the segment due to the existence of big players in the market.

Question 2

2A –

• 92 Articles.
• EURO 2,500 i.e. Total Revenue - Total Cost (34,500- 32,000).
 • To reach at profit maximizing level of output.
1.Identify Fixed & Variable cost and add both to arrive at Total Cost for each level of output.
Calculate Marginal Cost at each level by dividing Change in Total Cost by Change in
Output.
2.Identify Revenue at each level by multiplying price of each article and number of articles.
3.Calculate Marginal Revenue at each level by diving Change in Revenue by Change in Output.
4. At Last subtract Marginal Revenue and Marginal Cost to arrive at change in Price.

When the Change in Price, at a certain output level, reaches Zero i.e. MC is equal to MR, it will
be the profit maximizing output.

2B –

• Would have to fire 4 employees ,if focusing profit maximization.The new profit maximizing
level has reduced to 54 articles per month as opposed to 92 articles previously. Thus 4 extra
employees as per the current situation.
• New Profit is EURO 1,500 i.e. 13,500 - 12,000.
• The profit reduced because of the decrease in price per article from EURO 375 to EURO 250.
The decrease in profit lead i.e. EUR 1,500 than EUR 2,500 previously. the negative change in
profit would lead to extra cost and no profit. Keeping extra employees was not in line with
company’s favour. Difference b/w Marginal cost and Marginal revenue became zero at 4
journalists and 54 articles as opposed to 8 journalists and 92 articles previously. For
profit maximization,4 journalists had to be fired.

Question 3

3A - Cyclical Unemployment is the type of unemployment country like India would experience
due to the pandemic. As per Economic Survey of 2018-19, 85% of Indian population still works in
informal sectors like construction labors, car repair, grocery stores, and domestic workers. because it
is unregulated and not covered with any contract, such a pandemic can leave these workers out of
job.

3B - Demand-led recession is caused by such a pandemic, includes Household Consumption,

investments, Government Spending and difference between Imports and Exports.Due to the lack of
income and unemployment, the demand and spending limit also reduced leading to fall in Aggregate
demand. Fall in Aggregate Demand reduces the GDP too. Investors and consumers now wanted
to hold onto the money than spend shortening flow of money in the economy. Thus, this pandemic
was a demand-led recession.

3C - Aggregate demand and aggregate supply shifted leftwards. Aggregate Demand shift towards
left – Due to the fall of consumer spending and willingness to invest.

the Aggregate demand fell and shifted towards left. When the demand shifts towards left and supply
remains the same, the price of goods fall. Aggregate Supply shift towards left – When the lockdown
 was imposed, the demand took a sharp fall but supply remained same for some time which created
surplus in the market leading to leftward shift in the Aggregate supply curve.

3D -In this situation, Aggregate demand curve will shift towards left due to the fall in demand.
Aggregate supply curve will first shift towards left due to the surplus in the market but later in the
year will shift towards right adjusting itself with the demand and investment.

Question 4

4A -Macroeconomics steps Indian government should take after the crisis created by pandemic:

Expansionary Fiscal Policies:

1. Government Expenditure – In india more than half of the population was unemployed
after the lockdown, should introduce relief programs like provide unemployment
compensation to daily wage workers, farmers, free travel for migrants with no job, control
basic medical charges and provide minimum healthcare facility to impoverished.
2. Taxation – lowering tax directly helps consumers with more money in hand for
expenditure. This is a famous method applied by many democratic countries in the
time of crises and recession.

4B - Macroeconomics steps reserve Bank of India should take after the crisis created by pandemic:

Monetary Policies:

1. Influx money in the economy by purchasing government bonds so that population has more
money in hand to influence them to spend and create demand. o
2. Reduce Interest Rate – Government should reduce interest rate on borrowings to allow
consumers to take loan and spend the same again increasing demand and flow of money in
the market.