Unit 3 Test Review

Which of the following economic systems is characterized by private ownership of businesses and resources, with prices determined by supply and demand?

• Communism

• Capitalism

• Socialism

Answer explanation

The economic system characterized by private ownership of businesses and resources, with prices determined by supply and demand is Capitalism. In contrast, Communism involves collective ownership and Socialism involves both private and public ownership with government intervention in the economy.

In a market economy, prices are primarily determined by:

• Government authorities

• Supply and demand

• Central planning committees

• Collective decision-making

Answer explanation

In a market economy, prices are not determined by government authorities, central planning committees, or collective decision-making. Instead, they are primarily determined by the forces of supply and demand. When demand for a product or service increases, the price tends to rise. Conversely, when supply of a product or service increases, the price tends to fall. This is why 'Supply and demand' is the correct answer.

Which economic system is characterized by government ownership of resources and central planning?

• Market economy

• Command economy

Answer explanation

A command economy is characterized by government ownership of resources and central planning. In this economic system, the government makes all decisions about what to produce, how to produce it, and for whom. This is in contrast to a market economy, where these decisions are made by individual producers and consumers.

Which economic system emphasizes collective ownership of resources and aims for equality among individuals?

• Market economy

• Capitalism

• Socialism

Answer explanation

The economic system that emphasizes collective ownership of resources and aims for equality among individuals is Socialism. Unlike Market economy and Capitalism, which prioritize individual ownership and profit, Socialism focuses on equal distribution of resources and wealth among the population.

The concept of scarcity in economics refers to:

• An excess of resources and goods

• A surplus of money in the economy

• The limited availability of resources relative to unlimited wants and needs

• The absence of government intervention in the economy

Answer explanation

Scarcity in economics refers to the limited availability of resources in comparison to unlimited wants and needs. This concept is fundamental to economics as it underpins the notion of choice and the need for decision-making in resource allocation. The other options do not accurately define the concept of scarcity in economics.

What type of economy is characterized by government control over all economic activities?

• Market economy

• Command economy

• Mixed economy

• Traditional economy

Answer explanation

A command economy is characterized by government control over all economic activities. In this type of economy, the government makes all decisions regarding the production and distribution of goods and services. This is in contrast to a market economy, where these decisions are made by individual producers and consumers, or a mixed economy, which combines elements of both. A traditional economy is based on customs and beliefs, not government control.

In a mixed economy, which of the following is true?

• The government has complete control over all economic activities.

• Prices and production levels are solely determined by consumers.

• Both the government and private individuals play a role in economic decision-making.

• Resources are allocated based on supply and demand.

Answer explanation

In a mixed economy, both the government and private individuals play a role in economic decision-making. This is because a mixed economy is a blend of free market and command economy systems. Therefore, while the government may regulate certain industries, private individuals also have the freedom to make economic decisions.

Which type of economy is based on customs, traditions, and cultural beliefs?

• Market economy

• Command economy

• Mixed economy

• Traditional economy

Answer explanation

A traditional economy is based on customs, traditions, and cultural beliefs. In this type of economy, people rely on the knowledge and practices passed down through generations to produce goods and services. Unlike market, command, or mixed economies, traditional economies are primarily driven by social norms and values, rather than profit or government control.

In a market economy, how are prices and production levels determined?

• By the government

• By consumers

• By businesses

• By cultural beliefs

Answer explanation

In a market economy, prices and production levels are determined by consumers through the forces of supply and demand. Consumers express their preferences by purchasing goods and services, which in turn signals businesses to produce more or less of a particular product. This interaction between supply and demand helps to establish equilibrium prices and production levels, without the need for government intervention or cultural beliefs influencing the process.

The Industrial Revolution was defined by a shift from an (a)   economy to an (b)   economy.

• barter

• agrarian (or agricultural)

• industrial

• service based

• cash based

Answer explanation

The Industrial Revolution marked a major turning point in history, as it shifted the world from an agrarian (or agricultural) economy to an industrial economy. This transformation involved a transition from manual labor and farming to mechanized production and manufacturing, leading to significant economic and societal changes.