Unit 1 Economics Test

What is an economic system?

• The way a society coordinates the production and consumption of goods and services

• A market where only traditional goods are sold

• A system for enforcing government policies

• A set of laws that regulate trade only

• None of the above

In a traditional economy, who or what primarily decides what to produce?

• Custom and tradition

• Private investors

• Market demand

• Government decrees

• None of the above

How is labor typically divided among the Maasai people?

• According to government regulations

• Randomly assigned by community leaders

• Based on social customs and gender roles

• By democratic election

• None of the above

In a command economy, who makes the key economic decisions?

• Local community councils

• Free market entrepreneurs

• Individual consumers

• A powerful ruler or central authority

• None of the above

What distinguishes a market economy from the other systems?

• Production is determined by ancient customs

• Only traditional methods of production are used

• Decisions are made voluntarily by millions of individuals guided by self-interest

• Economic decisions are made solely by government planners

• None of the above

Adam Smith’s concept of the “invisible hand” suggests that:

• Individuals pursuing their own gain can unintentionally benefit society

• Government intervention is necessary for economic success

• Tradition is the best guide for production decisions

• Rulers always know what is best for society

• None of the above

In the circular flow model, the market where firms sell goods and services to households is called the:

• Money market

• Factor market

• Product market

• Secondary market

• None of the above

How does the circular flow model describe the movement of goods and money?

• Both goods and money flow randomly

• Money and goods circulate only within households

• Goods move clockwise from firms to households, while money flows counterclockwise from households to firms

• Goods move counterclockwise and money moves clockwise

• None of the above

How did the Industrial Revolution contribute to the development of market economies?

• It spurred the growth of industry and created capital for individual investors

• It abolished the concept of private ownership

• It enforced traditional customs and rituals

• It centralized economic decision–making under powerful rulers

• None of the above

What is the main idea of the "Scarcity Forces Tradeoffs" principle?

• There is no need to make decisions about resources

• Scarcity is not a concern in economics

• Limited resources require people to make choices

• People always get what they want

• None of the above