Imt Covid 19 Project

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IMT Covid 19 Project

Economics (Liverpool John Moores University)

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Name Sushil Kumavat

Question 1

1 (A):

The Phenomenon which involves joint decision making is known as Collusion.

Collusion takes place in an Oligopoly market structure which is operated by a few large firms
wherethey come together for their mutual benefits that is influencing the output and setting the
priceof a product. OPEC is one such organization where 13 oil-producing member nations
has colluded & formed a formal Cartel.

The Advantages of Collusion are as follows:

1. Firms/Organizations collude with the intention of maximizing profit and reducing


competitiveness of the market.

2. During uncertain time, like recession, firms/organizations have the power to control supply
which in turn helps in keeping the price stable.

3. Since firms/organizations united as per this phenomenon, competitive advertising is


avoided, thus helping the firms to solely focus on production. Although collusion is beneficial
for /organization, it has some disadvantages

over the economic welfare. Some of these disadvantages are given below:

1. Collusion mainly implies high prices for consumers, thus leading to a decline in consumer
surplus.

2.Entry of new firms/organization is highly restricted as the colluded firms/organizations act


as one

1 (B):

OPEC reached a decision to cut oil supply to stop the falling prices of oil and similarly reduce
oversupply. The desired outcome was complete market protection from the drop in demand
due to lockdowns and restrictions. Changes in supply and demand following the cut in supply
were characterized by low price elasticity of demand and an inelastic supply curve

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1 (C):

OPEC operates in an oligopolistic market structure. Key characteristics of this market


structure include interdependence since actions and decisions cannot be made independently,
barriers to entry due to market dominance, and the existence of price rigidity.

Question 2

2 (A):

The business was producing 92 articles per month.

Total Revenue = ad revenue per article * number of articles (92 * 375) = €34,500.

Total Profit = Total revenue – Total costs

= €34,500 - €32,000

= €2,500

Operating at profit maximising the business was producing between 92 articles monthly with 8

journalists since the profit maximizing option occurs at the maximum level of output (92)

giving the equilibrium level whereby the marginal costs is equivalent to the marginal revenue.

The marginal cost that is equivalent to the marginal revenue is €375.

2 (B):

Given that the business only cares about profit maximisation, the new number of articles that

will be produced after the lockdown is 54 articles with 4 journalists since marginal costs is

equal to marginal revenue at that equilibrium level. Therefore,

Number of to fire

= 8 journalists prior lockdown – 4 journalists during the lock down

=4

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New Total profit = Total Revenue = ad revenue per article * number of articles (54* 250) =
€13,500.

Total Profit = Total revenue – Total costs

= €13,500 - €12,000

= €1,500

The journalists are fired since the new equilibrium level that maximises profit changes to 54

articles with 4 journalists since the marginal costs are equivaent to marginal revenue at this

point. The marginal costs equal to marginal revenue are € 250.

Question 3

3 (A):

India’s economy is likely to experience cyclical unemployment rates due to the impacts of the

pandemic on the economy’s business cycle. Cyclical unemployment usually results from

economic downturns and contractions such as the one caused by the COVID 19 pandemic.

3 (B):

The coronavirus pandemic has triggered a prolonged boom in the economy than ever before.

Thus, the pandemic is likely to cause an L-Shaped recession that is characterized by steep

declines and extended recession.

3 (C):

Cyclical unemployment is likely broad within the aggregate demand and aggregate

supply framework. This is in which case the equilibrium falls below the expected GDP and

similarly less when the equilibrium is closer to potential GDP. A fall in the Indian GDP

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indicates the economy’s dip into recession with the AS/AD equilibrium level of sustainable

domestic product falling below the expected potential.

3 (D):

Cyclical unemployment is portrayed by the closeness of the economy to the potential GDP. As

such, a low cyclical unemployment is shown by the level of output being relatively closer to the

potential GDP and the equilibrium point. The reverse is the case for a higher cyclical

unemployment.

Question 4

4 (A):

Small to medium enterprises required a multi-prolonged effort. Therefore, India’s government

should adopt a policy that advocates for infusion of cash to pay accumulated arrears of these

enterprises. In addition, banks should also be allowed interest subsidies to enable reduction of

credit on SMEs loans.

Protection of workers in the informal sector through Mahatma Gandhi National Rural

Employment and Jan Dhan accounts. These systems operate as automatic stabilizers in a way

that the unemployed persons can apply for jobs when they need them.

For firms operating in the organized sector, banks should me made less risk averse in lending

while also maintaining the authority to determine the viable and non-viable firms.

4 (B):

Macroeconomic policies that should be adopted by RBI include easing liquidity since the

direst need is offering credit to the hurting businesses. With this approach, RBI will be obliged

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to take cues from other central banks since liquidity should not be a constraint. Similarly, RBI

should relax the non-performing assets norms. The financial services sector is looking to RBI

to offer relief, a plan that also includes deferment of NPA classification norms. This way, the

banking system could enjoy some comfort away from the under-capital and increased debts.

Lastly, RBI could offer liquidity support to Indian banks on foreign operations and also widen
the re-finance opportunity for both small-medium and large enterprises as way of enabling

them settle their debts.

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