Author Question: Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its profit be ... (Read 54 times)

ec501234 · **on:** Jun 29, 2018

Refer to Scenario 1-2. Had the firm not produced and sold the last 300 hats, would its profit be higher or lower, and by how much?

A) Its profit will be 1,000 lower. B) Its profit will be 100 lower.
C) Its profit will be 1,100 higher. D) Its profit will be 100 higher.

Question 2

What could explain why South Korea's gross domestic product (GDP) per capita increased so much faster since the 1970s than North Korea's GDP per capita?

What will be an ideal response?

Dominic · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

D

Answer to Question 2

One of the factors that could explain the divergence between South Korea's and North Korea's per capita GDP is the fact that South Korea is a market economy while North Korea is a command economy. The price mechanism allocates resources in market economies to their most efficient use. It also aligns the incentives of sellers and buyers. Central planners in command economies, however, face coordination and incentive problems. The central planner does not fully understand consumer wants and the production capabilities of every sector of the economy, and it is difficult to provide workers with appropriate incentives.