ECA115D/ECN105D/EA105D TEST 1 28. In economics, the "HOW" in the production question refers to a) The ways in which factors of production may be combined to produce output b) The way in which firms uses principle of profit maximization c) The way in which the state sets output targets in a command economy d) The problem of scarcity in the economy 29. Adam Smith's concept of the invisible hand suggests that the selfish actions of rational individuals will generate an efficient allocation of scarce resources a) False b) True 30. In the South African economy, the problem of "WHAT TO PRODUCE" is solved primarily by: a) The national Planning Commission b) The South African Reserve Bank c) The South African Revenue Services d) The patterns of consumers spending and direction of government 31. Problems relating to the allocation of the factors of production and the distribution of income exist: a) In socialist economies only b) In capitalist economies only c) In market economies only d) In all economies 32. Which statement best describes the economic system? a) A network of parts interlocked to form a pattern that aims at solving the What, How and For Whom questions in the society. b) Aims at studying the choices economic agents make under conditions of scarcity. c) It explains how the different types of systems are interdependent. d) Coordinating mechanism 33. Which of the following is not a common feature in classifying economic systems? a) Property rights b) Market capitalism c) Planned socialism. d) Traditional system 8

**28.** We need to determine what “HOW” refers to in the production question. The “HOW” question asks: “In what way are goods and services produced?” This involves the combination of factors of production. Thus, \[ \text{Answer: (a) The ways in which factors of production may be combined to produce output.} \] **29.** Adam Smith’s invisible hand concept suggests that when individuals act in their own self‐interest, they inadvertently contribute to an efficient allocation of resources in the market. This is a cornerstone of classical economics. Therefore, \[ \text{Answer: (b) True.} \] **30.** In a market economy like South Africa’s, the decision of what goods and services to produce is largely determined by the spending patterns of consumers along with government direction (such as regulation and policy). Hence, \[ \text{Answer: (d) The patterns of consumers spending and direction of government.} \] **31.** The allocation of the factors of production and the distribution of income are issues that every type of economic system faces, whether it is capitalist, socialist, or traditional. Thus, \[ \text{Answer: (d) In all economies.} \] **32.** An economic system is best described as a network of components designed to answer the fundamental economic questions — what, how, and for whom to produce. Therefore, \[ \text{Answer: (a) A network of parts interlocked to form a pattern that aims at solving the What, How and For Whom questions in the society.} \] **33.** When classifying economic systems, common features include the nature of property rights, and the extent of planning versus market forces. In contrast, terms like “planned socialism” and “traditional system” are types of economic systems rather than features or classification criteria. Among the options given, \[ \text{(b) Market capitalism} \] is not a feature used in classifying economic systems but rather a type/name for one kind of system. Hence, \[ \text{Answer: (b) Market capitalism.} \]