Chapter 2 Test Review

Which one of the following choices BEST describes why countries with a communist, or command, economy often lack (do not have) capital resources?

• The government decides how many people to hire.

• Private investors (business owners) are not allowed by the government.

• The government controls farmland.

• There is an abundance of natural resources.

Answer explanation

In a command economy, the government restricts private ownership, preventing business owners from investing in capital resources. This lack of private investment leads to fewer capital resources available in the economy.

The cashier in a grocery store is an example of which factor of production?

• natural resource

• labor resource

• capital resource

• entrepreneur

Answer explanation

The cashier in a grocery store represents a labor resource, as they provide the human effort needed for the operation of the store. This distinguishes them from natural resources, capital resources, and entrepreneurs.

Rice is an example of which factor of production?

• natural resource

• labor resource

• capital resource

• entrepreneur

Answer explanation

Rice is a natural resource as it is a raw material obtained from the earth, used in production. It is not labor, capital, or an entrepreneur, making 'natural resource' the correct choice.

By creating new products and services, ______ boost employment, which result in economic development.

• entrepreneurs

• investors

• managers

• employees

Answer explanation

Entrepreneurs create new products and services, which leads to job creation and boosts employment. This process is essential for driving economic development, making 'entrepreneurs' the correct choice.

In a free enterprise (market) economy, the ______ choose(s) what to produce, while in a communist (command) economy, the ______ choose(s) what to produce.

• business owners

• government

• consumers

• workers

• investors

Answer explanation

In a free enterprise economy, business owners decide what to produce based on market demand. In contrast, in a communist economy, the government makes these production decisions, controlling resources and output.

Unlike in a communist (command) economy, competition between businesses in a free enterprise (market) economy leads to-

• strikes and businesses closing.

• higher quality and lower prices.

• scarcity of resources.

• lower quality and higher prices.

Answer explanation

In a free enterprise economy, competition drives businesses to improve quality and reduce prices to attract customers, unlike in a command economy where such dynamics are absent.

In the United States consumers may choose which brand of shoes to purchase because the U.S. has a ______ economic system.

• traditional

• socialist (mixed)

• feudal

• communist (command)

• free enterprise (market)

Answer explanation

The U.S. has a free enterprise (market) economic system, allowing consumers to choose from various brands of shoes. This system promotes competition and consumer choice, unlike traditional, socialist, feudal, or communist systems.

The list describes characteristics of which economic system?

• Free enterprise (market)

• Communist (command)

• Socialist (mixed)

• Traditional

Answer explanation

The characteristics described align with a traditional economic system, which relies on customs and historical practices for economic decisions, unlike free enterprise, communist, or socialist systems that have different decision-making processes.

In contrast to a free market system, a socialist economic system would have which of the following characteristics?

• 100% government-owned companies

• Mostly privately-owned companies

• Some privately-owned companies

• No companies, just a barter system

Answer explanation

A socialist economic system typically features 100% government-owned companies, contrasting with a free market where private ownership prevails. This ensures state control over production and distribution.

According to the chart above, what is an advantage of being a citizen in a representative government?

• citizens have more rights

• citizens have few rights

• citizens have the same amount of freedoms in both countries

• citizens are allowed to choose their freedoms

Answer explanation

In a representative government, citizens typically have more rights compared to other forms of governance. This allows them greater participation in decision-making and protection of their freedoms.