1. When labor is relatively expensive, as it is in Japan,
A) alcohol and cigarettes must be sold through vending machines
B) businesses will substitute capital -- such as vending machines -- in place of labor
C) manufacturers will employ lots of labor
D) the unemployment rate will be high
E) vending machines displace labor, causing unemployment

2. An entrepreneur
A) claims the residual (i.e., whatever is left over) after other resource suppliers are compensated
B) is a parasite that benefits by not paying other resources for their services
C) always makes a profit
D) generally avoids risky situations
E) is the manager who runs an enterprise and keeps the customers happy

3. Which of the following would an economist classify as capital?
A) a lawyer's personal computer
B) 100 shares of Microsoft stock
C) a $50 bill
D) a credit card
E) a bauxite mine in Jamaica

4. An economist would classify 100 shares of Apple Computer stock as capital.
A) True
B) False

5. Behavioral assumptions

A) describe how individuals are expected to behave
B) hold all other things constant
C) are ways to test a hypothesis
D) pertain only to consumers
E) make economic models more complex than if these assumptions were removed

6. Economic information
A) is usually available free to any decision maker
B) is usually scarce and costly to acquire
C) is usually not required for rational decision making
D) is usually useful only to governments
E) must be complete before any decision is made

7. Resources are used only in the production of goods, not services.
A) True
B) False

8. Step one in the scientific method is
A) test the hypothesis
B) reflect an opinion
C) identify the question and define relevant variables
D) formulate a hypothesis
E) specify assumptions

9. An economic model
A) can be constructed for an individual economic unit but not for the economy as a whole
B) always has a mathematical foundation
C) can be constructed for the economy as a whole but not for an individual economic unit
D) can never be proven wrong
E) is a simplification of the real world

10. In an economic model of consumer behavior, rational self-interest would likely be
A) a prediction of the model
B) the hypothesis of the model
C) a behavioral assumption
D) a method of testing the model
E) a key variable

11. Theory in economics
A) approaches reality in all its complexity
B) involves some simplification of reality
C) bears no relation to reality
D) focuses on the unique aspects of each situation
E) involves so much distortion of reality that it is worthless

12. Macroeconomics is the study of
A) government's role as a stabilizing influence on the economy
B) the economic behavior of individual decision makers
C) the behavior of large firms in the marketplace
D) the behavior of the economy as a whole
E) how to use the fewest natural resources to produce goods and services

13. Economists tell stories -- like the vending machine story --
A) as a way of rigorously testing economic theory
B) to show how their theory can predict at least one real-world situation
C) because doing so is a required part of the scientific method
D) in order to breathe life into economic theory and personalize abstract ideas
E) because economics is an art, not a science

14. The college majors that lead to the highest median earnings for both men and women tend to be those that
A) are more quantitative and analytical
B) stress verbal skills
C) require detailed knowledge of political institutions
D) are computer-related
E) emphasize foreign language skills

15. A good economic theory
A) cannot be proven false
B) predicts well
C) contains as much detail as possible
D) can only be presented in mathematical terms
E) has realistic assumptions

16. A rational individual would make charitable contributions only if such contributions receive favorable tax treatment.
A) True
B) False

17. Which of the following is an example of a normative statement?
A) The quantity of shirts sold increases as the price of shirts decreases.
B) The federal government's total spending should be reduced.
C) If the money supply falls, interest rates will rise.
D) If interest rates go up, then construction activity will fall.
E) Teenage unemployment would be lower if there were no minimum wage.

18. Profit is the payment received by resource owners for the use of their capital.
A) True
B) False

19. Unlike a "service," a "good"
A) uses resources to satisfy wants
B) is desirable
C) is physical and tangible
D) is abundant and free
E) is a resource

20. To tell a compelling story, an economist relies on
A) irrelevant data
B) anecdotes
C) case studies and anecdotes
D) anecdotes and irrelevant data
E) case studies