How are the fundamental economic decisions determined in North ...

[james]

How are the fundamental economic decisions determined in North Korea?
 
  A) The United Nations decides because North Korea is a developing economy.
  B) These decisions are made by the country's elders who have had much experience in answering these questions.
  C) Individuals, firms, and the government interact in a market to make these economic decisions.
  D) The government decides because North Korea is a centrally planned economy.

Question 2

Suppose the refrigerator industry has an HHI of 2,500 while the aluminum industry's HHI is 6,850 . Is this information sufficient to conclude that the aluminum market is more concentrated than market for refrigerators? Explain your answer.
 
  What will be an ideal response?

[cdmart10]

Answer to Question 1

D

Answer to Question 2

An HHI of 2,500 does not in itself mean that the market is highly concentrated. For example, if there are only four firms in an industry, and each firm supplies 25 of the market, intense competition can actually exist among these four firms. This may be sufficient to drive the market equilibrium toward a competitive outcome. Empirical research has shown that the number of firms does not have to be very large to bring prices close to the competitive level.
Chapter 15
Trade-offs Involving Time and Risk
Questions