Practice Unit 1

How is an economic system defined?

• The manner in which a society organizes the production and consumption of goods and services

• A market exclusively for traditional goods

• A structure for enforcing governmental policies

• A set of regulations governing only trade

• A system focused solely on resource allocation

In a traditional economy, what primarily determines the production choices?

• Customs and traditions

• Decisions by private investors

• Signals from market demand

• Government directives

In a traditional economy, which objective is regarded as the most important?

• Increasing wealth for the ruling class

• Maximizing freedom and efficiency

• Achieving the highest profit margins

• Ensuring economic stability and security

Within a command economy, who is responsible for major economic decisions?

• Local councils

• Private sector entrepreneurs

• Individual consumers

• A central authority or ruling figure

• Decentralized market forces

Which factor best differentiates a market economy from other economic systems?

• Production decisions driven by age-old customs

• Exclusive reliance on traditional production methods

• Decisions made voluntarily by many individuals acting in self-interest

• Economic choices dictated solely by government planners

• Uniformity in production practices

According to Adam Smith’s idea of the “invisible hand,” which of the following is implied?

• Individuals seeking personal gain can inadvertently serve society’s interests

• Government regulation is essential for economic prosperity

• Long-held traditions should guide production decisions

• Leaders always know what is best for society

• Markets require strict oversight to function well

Within the circular flow model, what is the market called where businesses sell products and services to households?

• Money market

• Factor market

• Product market

• Secondary market

• Consumer market

How is the circulation of goods and money depicted in the circular flow model?

• Goods and money move in a random pattern

• They circulate only within households

• Goods flow from businesses to households clockwise, while money flows from households to businesses counterclockwise

• Goods circulate counterclockwise while money moves clockwise

• Both goods and money travel in the same direction

What was one effect of the Industrial Revolution on the formation of market economies?

• It stimulated industrial growth and provided capital for private investors

• It ended the concept of private property

• It reinforced traditional cultural practices

• It centralized economic decisions under authoritarian control

• It diminished the importance of consumer choice

What is the central message of the “Scarcity Forces Tradeoffs” principle?

• Decisions about resources are unnecessary

• Scarcity is not an issue in economics

• Limited resources compel individuals to make choices

• Everyone can have everything they desire

• Resources are abundant and unlimited