ECON 1.2 - Economic Systems

What are the three basic questions every society must answer to form an economic system?

• Who produces, who consumes, and who regulates

• What to produce, how to produce it, and who gets it

• How much to produce, how to distribute, and how to consume

• Where to produce, when to produce, and why to produce

What are factors of production?

• Land

  Labor

  Capital

• Agriculture

  Labor

  Entrepreneurs

• Tools

  Machinery

  Workers

• Air

  Water

  Fire

In a command economy, private individuals and businesses determine what goods to produce, how much of these goods to produce, and at what cost to the consumer.

• True

• False

In a free-market economy, individuals and businesses determine what goods to produce, how much of each good to produce, and at what cost to the consumer.

• True

• False

What is function of the 'invisible hand' in a free market economy?

• Individuals and businesses meet society's needs when they seek their own self-interest.

• Governments create a secret organization to manage resources

• Society creates a government agency to control production

• Individuals who seek their own self-interest will become greedy and charge higher prices.

Economic functions of the government are all the following EXCEPT to...

• Control the price level of goods.

• Provide public goods when the market fails

• To create a stable & safe economic environment.

• To make sure the workers are treated fairly.

Which of the following is an economic system in which the government and individuals decide how to use scarce resources?

• Market Economy

• Command Economy

• Traditional Economy

• Mixed Economy

What does the circular flow model illustrate?

• The movement of goods and services in a closed economy

• The cycle of production in a single business

• The flow of money in a command economy

• The interaction between households, businesses, and the government

Economic models provide perfect solutions to real world situations and should be followed exactly as described with no changes.

• True

• False