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Covid19 Ds

The document discusses collusion in oligopolistic markets and provides examples from OPEC. It notes that collusion allows firms to manipulate prices and costs. While this benefits firms, it reduces consumer surplus and can discourage new firms. The document then discusses how the COVID-19 pandemic reduced oil demand and forced OPEC to cut supply to stabilize prices. This caused the supply curve to shift left and prices to increase slightly. Finally, it defines the key features of an oligopolistic market structure.

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Saptak Samadder
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26 views3 pages

Covid19 Ds

The document discusses collusion in oligopolistic markets and provides examples from OPEC. It notes that collusion allows firms to manipulate prices and costs. While this benefits firms, it reduces consumer surplus and can discourage new firms. The document then discusses how the COVID-19 pandemic reduced oil demand and forced OPEC to cut supply to stabilize prices. This caused the supply curve to shift left and prices to increase slightly. Finally, it defines the key features of an oligopolistic market structure.

Uploaded by

Saptak Samadder
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Name Digvijay Sharma

Question 1

The phenomenon involved in such joint decision-making is called as a Collusion. Oligopoly


forms when a very few large firms have most power over the industry sales. To influence
output price of a product collusion affects the oligopoly businesses.
The advantages of such decision-making are as follows:
 Produces in oligopoly market, by collusion, can manipulate and increase prices and/or
reduces cost in the market. Like OPEC during pandemic, when prices fell into
negatives, implying that people would pay to get rid of the oil, the decision to reduce
the supply helped save cost. Lead to more investment in research and development.
The disadvantages of such decision-making are as follows:
 Collusion leads to high prices for consumers leading to decline in consumer surplus.
 New firms can be discouraged to enter the market.
Reasons for OPEC to cut the supply of oil:
 The demand of oil shrunk down due to the lockdown that lead to surplus of oil
and increased cost of storage. Traders were paying money to get rid of oil.
 Shortage of storage space forced OPEC to cut supply.
Change in demand and Supply Curve after the decision: After the decision to cut the supply,
the oil price would slightly increase however, of course 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) towards the end of the year.
OPEC operates in an Oligopoly market. An oligopoly is a market state where there are limited number
of suppliers / producers / distributors of a certain product. Thereby giving an edge to such group to
determine the price as well as the supply of the product in a manner that their interests are
safeguarded.

Key features of such a market are:

 Only few large firms dominate the market.


 The product supplied can be identical like commercial airline and differential like soft drink
industry
Question 2

Part A

 92 Articles as this is where marginal cost is equal to marginal Revenue.


 EUR 2,500 i.e. Total Revenue minus the Total Cost (34,500- 32,000)
 To reach at profit maximizing output, following steps were followed

Part B

. How many journalists would you have to fire? The business would have to let go 4 employees
as it if following profit maximization. The new profit maximizing level has reduced to 54
articles per month as opposed to 92 articles previously. Thus, this leads to 4 extra employees
as per the current situation.

What is your new total profit? The new Total Profit is EUR 1,500 i.e. 13,500 minus 12,000.

Why did you fire the journalists? Reason for the layoff of journalists are: The profit reduced
substantially due to the decrease in price of per article from EUR 375 to EUR 250. The
decrease in profit lead to smaller Total profit i.e. EUR 1,500 than EUR 2,500 previously.

Question 3

Cyclical Unemployment is the type of unemployment country like India would experience due
to the pandemic.

As per The Economic Survey of 2018-19, 85% of Indian population still works in informal
sectors like construction labours, car repair, grocery stores, and domestic workers. This type
of employment can be considered quasi-legal in that the work is considered
"legitimate" But because it is unregulated and not covered with any contract, such a
pandemic can leave these workers out of job.

Demand-led recession is caused by such a pandemic.

The Aggregate Demand in an economy includes Household Consumption, investments,


Government Spending and difference between Imports and Exports. The pandemic created a
situation of unrest worldwide due to virus being unknown and deadly.
Thus, this pandemic was a demand-led recession.
In India, due to the above phenomenon, 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.

Aggregate Supply shift towards left – When the lockdown was imposed, the demand took a
Sharp fall but supply remained same.
In this situation, Aggregate demand curve will shift towards left due to the fall in demand.

Question 4

The type of macroeconomics steps Indian government should take after the crisis created by
pandemic:

Expansionary Fiscal Policies: 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
The type of macroeconomics steps reserve Bank of India should take after the crisis created by
pandemic:

Monetary Policies: Influx money in the economy by purchasing government bonds so that
population has more money in hand to influence then to spend and create demand.

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