Economics Test
Name:_____________ Class:_____
1. E2 What is free trade?
a. When all goods are free
b. When there are no trade barriers
c. When people are free to trade whatever they want
d. When governments are free to stop trade with another country
2. E2 What is currency?
a. Money
b. Government
c. An economic system
d. An electric current that flows through metal
3. E2a When a country does what they do best and trade for the things they don’t do best they are
doing what?
a. Specializing
b. Setting trade barriers
c. Both a and b
d. None of the above
4. E2c What does NAFTA stand for?
a. North American Free Trade Association
b. Never Allow Free Trade in America
c. Netherlands and Finland Trade Always
d. North American Free Trade Agreement
5. E3b What does the term “domestic product” mean?
a. A good that is produced in another country
b. A product that behaves and is not wild
c. A product that is produced in the country you live in
d. None of these are the correct definition
6. E2a How does specialization encourage trade?
Not every country produces everything it needs so they must trade what they produce and their
natural resources for the resources they do not have but still need
7. E2b What is one positive feature of free trade and one negative feature of free trade?
Positive: no trade barriers, keeps cost of goods lower
Negative: hurts domestic producers because they can’t compete with cheaper foreign goods
8. E2c What is the purpose of NAFTA?
The purpose of NAFTA is to create a free trade zone between the United States, Canada, and
Mexico
9. E2c Who is hurt by NAFTA? How or why?
Small business owners and low-skill/low-wage workers are hurt because those jobs are out
sourced to cheaper labor in foreign countries
Economics Test
Name:_____________ Class:_____
10. E2d Why does international trade require a system for currency exchange?
Currency exchange is required because each country does not use the same type of money and
they are not worth the same amount.
11. E2d One U.S. dollar equals $1.32 in Canadian dollars. Which currency is worth more and why?
One U.S. dollar is worth more because when you exchange the US dollar for Canadian dollar you
get more money in return.
12. E2b Which two types of trade barriers are sometimes used for economic purposes?
The two types of trade barriers sometimes used for economic purposes are tariff and quota.
13. E2b Which trade barrier is sometimes used for political reasons?
The trade barrier sometimes used for political reasons is an embargo.
14. E2b Who benefits from a quota? Who is hurt by a quota? Explain your answer.
Benefit: producers in domestic market benefit because it puts a cap on similar products that are
imported
Hurt: Foreign producers are hurt because they cannot sell as much of their product as they
would like
15. E1a How is a traditional economy different from a market and command economies?
A traditional economy is different because the economic decsision are based solely on what the
people within the community need to survive. Decisions are based on customs, beliefs, and
traditions. This is different from command because the government decides what the people
will have available to them and its different from market because in a market economy
economic questions are answered based on peoples wants.
16. E1a What are the 3 basic economic questions that every economic system must answer?
What to produce? How to produce? For Whom to produce?
17. E1b Most economies are a mixture of market and command economies. Why is it important to
have some government involvement in economic decisions?
It is important to have some government involvement in economic decisions because the
government needs to regulate the use of harmful materials, enforce labor laws, and set
minimum wages. Government involvement in the economy should be to protect the
consumer.
18. E1c Where would you place Canada and Australia on the economic continuum and why?
Both Canada and Australia would be closer to the market side of the continuum because both
economies have little government involvement in economic decisions. They are rank the 5th and
6th most economically free countries in the world.
Economics Test
Name:_____________ Class:_____
19. E3 How does the GDP of a country measure the health of a country’s economy?
The GDP of a country shows how well or how poorly an economy is functioning. The higher the
GDP the more goods and services that are being produced in that country and the healthier the
economy is. The lower the GDP is the fewer goods and services being produced and the less
healthy the economy is.
20. E3 Why does Australia have such a high GDP?
Australia has such a high GDP because their mixed economy allows for personal wealth which in
turn allows consumers to purchase and utilize more goods and services. It also allows for more
entrepreneurship opportunities which makes more goods and services available.
21. E2b How do domestic producers benefit from tariffs and quotas?
Tariff: the tax makes foreign goods more expensive which encourages people to buy the less
expensive domestic goods
Quota: domestic producers are able to raise the price of their goods because there is a limited
supply of the product (the bigger the demand the higher you can make the price)
22. E2b How are foreign producers hurt by tariffs and quotas?
Tariffs: foreign goods cost more due to the tariffs and foreign producers make less profit
Quota: less opportunity to sell foreign goods means less profit
23. E3a What is the best way to invest in your human capital?
The best way to invest in your human capital is to get a good education, job training, healthcare,
and meet your own basic needs.
24. E2c T or F Canada has a free trade agreement with all countries in the western hemisphere.
False
25. E3 Each example below represents one of the four factors of economic growth. You are to
identify what type of factor each one is. Write NR if it is a natural resource, HC if it is human
capital, CG if it is a capital good, and E if it is an entrepreneur.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
__E___ Levi Strauss
__CG_ computer
__HC__ teacher
__NR__ gold
_NR___ fertile soil
___E__Steve Jobs
__CG__ hammer, nails, and wrench
_NR___ coffee beans
_NR____ bauxite
_HC____
truck driver