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 Kalki Chowdhary

Question 1

OPEC is one of the world's main oil suppliers, which means they operate in an industry known
as an oligopoly, in which a small number of people control the majority of oil reserves, which
are subsequently sold to the whole world economy. Being the only ones with access to this
limited-supply natural resource implies having complete control over pricing and supply. When
the pandemic struck, the countries were completely shut down. The mobility of people was
restricted, companies were closed, and economic activity ceased. There was little movement of
individuals to even go to offices as the work from home culture exploded. Because of the
disturbance, oil consumption plummeted as well, as people stayed at home. Oil is basically used
in travel and there were strict policies on travel by the government so the industry came to a halt
for e.g. no air travel or personal travel was allowed and this came as a DEMAND SHOCK for
the OPEC.

• The demand for oil shrank as a result of the lockdown, resulting in an oil glut and higher
storage costs. Oil traders were willing to pay money to get rid of it.

• OPEC was compelled to cut supply due to a lack of storage space.

The goal of the supply cut was to raise oil prices, which had fallen into negative territory
because to a record surplus caused by the global shutdown.
The supply and demand curves shifted and even the subsequent market equilibrium because of
this reduction in the supply of oil.

Due to this reduction in supply of oil both the supply curve and demand curve shifted
downwards due to which the equilibrium pointed also shifted. This was done to maintain the
equilibrium point as much as possible because if the demand dropped then producing more
and more oil will decrease the price of oil subsequently and destabilize the equilibrium.

Demand and Supply Curve Changes Prior to the Decision:

The demand curve would shift to the left due to the unprecedented drop in oil demand, but
supply would remain constant since at this time the decision to cut supply was not made.

Changes in demand and supply curves following the decision:

Following the decision to cut supply, the oil price rose marginally, although not to the same
level as before the pandemic. The supply curve will shift, resulting in a price increase and a
minor rightward movement in the demand curve as the year progresses.

The Oil Petroleum Organization is thoroughly examined, revealing the oligopolistic marketing
technique used by OPEC members. The oligopoly market structure is defined as a market with
a small number of producers and a big number of customers, giving these producers a
competitive advantage. OPEC follows the same norm as an oligopoly market structure and so
clearly shows its relationship to one another. It is the best illustration of an oligopoly market
style.

Three Key features of Oligopoly market :

1. Price leadership occurs when one of the producers or firms becomes the group's leader
and convinces or dominates others to fix prices.
2. In an Oligopoly market, competition is fierce, and both price and non-price strategies
are employed to acquire new clients.
 3. Firms or manufacturers join forces to share a market and set pricing in an oligopoly
market. They make a lot of money by raising or lowering prices to attract more clients
due to an uncompetitive market structure, which creates entry barriers to this market.

Question 2

1. When MC=MR the business was producing 92 articles.

2. The total profit was $2500.
3. Given the fixed cost, no of journalists and no of articles produced we can calculate the
variable cost. Now using this we can calculate the total cost and total variable cost.
This helps us to calculate the MC (marginal cost) and MR (marginal revenue) as we
know that the total profit made on each article is $375.
This gives us the total profit and we can see that the profit maximization occurs at 92
articles.

1. To attain profit maximization 6 journalists have to be fired.

2. The new total profit = $1500.
3. If the business keeps working with 10 journalists and the no of articles produced is the
same it will result in loss as the profit from each article has dropped from $375 to
$250. So to attain profit maximization it’s important to calculate that how many
journalists give the max profit which is 4.

Question 3

India's unemployment rate was over 8% in December 2021, up from nearly 7% the month
before. While the unemployment rate had dropped dramatically since peaking in April 2020,
the outbreak of new coronavirus strains, combined with periodic lockdowns, resulted in a
shifting trend of unemployment gripping the country in 2021.
 The trickle-down effect is when something good happens to something else good happens to
something else.

The percentage of households experiencing a decrease in income increased to approximately

46% between February and April 2020. Later this year, inflation rates on goods and services,
such as food and petrol, are likely to rise. Job losses were a result of social estrangement,
particularly among the lower economic strata of Indian society. Several households stopped
using domestic help services, which were effectively unstructured monthly payments.

The most devastating impact of the virus and the lockdown had been on the economically
backward classes, with limited access to proper healthcare and other resources. As a result the
government launched various programs and campaigns to help sustain such households. Under
the Pradhan Mantri Garib Kalyan Yojana, 312 billion Indian rupees were accrued and
provided to around 331 million beneficiaries that included women, construction workers,
farmers, and senior citizens. More aid was announced in mid-May, to mainly support small
businesses through the crisis.

COVID-19-induced recession is unique, caused initially by supply disruptions, largely due to

government-imposed ‘stay-in-shelter lockdowns’. These have interacted with falling incomes
and demand, declining exports (and imports), collapsing commodity prices, shrinking travel
and tourism, decreasing remittances and foreign exchange shortages. Highlighting
implications for employment, wellbeing and development, it argues that governments need to
design comprehensive relief measures and recovery policies to address short-term problems.
These should prevent cash-flow predicaments from becoming full-blown solvency crises.
Instead of returning to the status quo ante, developing countries’ capacities and capabilities
need to be enhanced to address long-term sustainable development challenges. Multilateral
financial institutions should intermediate with financial sources at low cost to supplement the
International Monetary Fund’s Special Drawing Rights to lower borrowing costs for relief and
recovery.

Question 4
The first step must be to protect workers in the informal sector, who will be disproportionately
affected and have insufficient savings to weather the storm. It will be difficult, but there are
two mechanisms that could be used: Jan Dhan accounts and MNREGA (Mahatma Gandhi
National Rural Employment Guarantee Act).

MSMEs will require specific assistance, which will necessitate a multi-pronged approach:

The government's first priority should be to pay the MSMEs' massive arrears, which are
estimated to be in the billions of rupees. This will provide an instant financial influx,
encouraging banks to continue to fund them.

Banks could potentially be provided interest subsidies to help them lower the cost of
borrowing for MSME loans.

A loan guarantee fund might be established, with the goal of helping MSMEs that have been
heavily damaged by the crisis and are now considered too hazardous for banks to lend to.

All of these initiatives will be costly, asking the most essential question: where will the
government get the money? Fortunately, India has benefited from the continuing global crisis
in the shape of significantly cheaper oil costs. There would be a solid case for enabling the
advantages to go to the consumers in normal times. These aren't your typical times. The
windfall should be accounted for in the budget and redirected to those most in need.

While the Reserve Bank of India is conducting repeated open market operations and repo rate
auctions to supply long-term liquidity, the situation calls for more concrete action because
firms have already begun to suffer losses as a result of the country's entire lockdown. They
will be unable to pay their debts to banks or NBFCs if they are unable to produce cash.

Monetary policy:

In March 2020, the RBI acted fast, convening the Monetary Policy Committee (MPC) on
March 24, a week earlier than previously intended. The decisions were made to "(a) reduce the
virus's negative impacts; (b) resurrect growth; and, most importantly, (c) maintain financial
stability". The RBI decreased the policy repo rate from 5.15 percent to 4.0 percent over the
year as a result of the robust policy steps adopted at this meeting. This was accomplished in
two stages: first, a 75-basis-point drop to 4.40 percent on March 27, 2020, and then a 40-basis-
point reduction on May 22, 2020. Since then, the rate has remained constant.

Forward Guidance:

For the first time, perhaps, the RBI engaged in some degree of forward guidance. FG gained
prominence in the Reserve Bank’s communication strategy to support the accommodative
stance of the Monetary Policy Committee (MPC). The nature of this forward guidance was
repeated assurance to financial markets that the policy stance would remain accommodative
until the revival of growth.