1. Is the Test based on our choice between good and bad?
Yes. Some trials are in order to distinguish the believers from the disbelievers:
“Do people think that they will be left alone because they say: ‘We believe,’ and will not be tested.
And We indeed tested those who were before them. And ALLAH will certainly make (it) known (the truth of) those who are true, and will certainly make (it) known (the falsehood of) those who are liars, (although ALLAH knows all that before putting them to test)” [al-‘Ankaboot 29:2-3]