Question 1

Piece rates increase the incentive to work when output is easy to measure.

Accepted Answer

A) True 
 B)False  True

Question 2

Firms with at least one large shareholder ______ pay executives based on relative stock performance.

Accepted Answer

A)  are less likely to 
B)  are more likely to 
C)  are equally likely to 
D)  never 
A)  are less likely to 
B)  are more likely to 
C)  are equally likely to 
D)  never B

Question 3

A tournament system rewards workers based on absolute, not relative, performance.

Accepted Answer

A) True 
 B)False  False

Question 4

For-profit prisons should be less costly to operate than public prisons, but these cost savings may come at the expense of lower quality.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following are problems with a piece rate system?
I. The piece rate system might attract the least productive workers.
II. Workers might be concerned more about quantity than quality.
III. Inevitably, piece rate systems cause wages to rise more than productivity.

Accepted Answer

A)  I only 
B)  II only 
C)  I, II, and III 
D)  III only 
A)  I only 
B)  II only 
C)  I, II, and III 
D)  III only

Question 6

A poor teacher who grades on a curve introduces:

Accepted Answer

A)  significant environment risk. 
B)  significant ability risk. 
C)  significant environment risk and significant ability risk. 
D)  neither significant environment risk nor significant ability risk. 
A)  significant environment risk. 
B)  significant ability risk. 
C)  significant environment risk and significant ability risk. 
D)  neither significant environment risk nor significant ability risk.

Question 7

Use the following to answer questions:
Figure: Piece Rates  
-(Figure: Piece Rates) Refer to the figure. A piece rate is offered for every 10 bags of wheat that workers fill. Which of the three piece rates plotted in the figure above has the highest dollar value to the firm?

Accepted Answer

A)  P1 
B)  P2 
C)  P3 
D)  All three piece rates are of equal value. 
A)  P1 
B)  P2 
C)  P3 
D)  All three piece rates are of equal value.

Question 8

The main advantage of piece rate pay is:

Accepted Answer

A)  decreased labor costs. 
B)  increased quality. 
C)  increased productivity. 
D)  easy implementation. 
A)  decreased labor costs. 
B)  increased quality. 
C)  increased productivity. 
D)  easy implementation.

Question 9

Even though firms and workers can both benefit from piece rates, piece rates are sometimes not implemented because of:

Accepted Answer

A)  government regulation. 
B)  a shortage of workers. 
C)  fear of a decrease in the piece rate. 
D)  All of the answers are correct. 
A)  government regulation. 
B)  a shortage of workers. 
C)  fear of a decrease in the piece rate. 
D)  All of the answers are correct.

Question 10

According to the text, how many American workers currently own stock in the companies for which they work ?

Accepted Answer

A)  about 10 million 
B)  about 20 million 
C)  about 50 million 
D)  about 75 million 
A)  about 10 million 
B)  about 20 million 
C)  about 50 million 
D)  about 75 million

Question 11

Paying executives based on relative stock performance in industry rewards results due to external factors ______ paying executives based on absolute performance in industry.

Accepted Answer

A)  more than 
B)  less than 
C)  by the same amount as 
D)  sometimes more than and sometimes less than 
A)  more than 
B)  less than 
C)  by the same amount as 
D)  sometimes more than and sometimes less than

Question 12

If your professor is difficult to understand, this is an example of:

Accepted Answer

A)  ability risk. 
B)  environment risk. 
C)  risk aversion. 
D)  risk inclination. 
A)  ability risk. 
B)  environment risk. 
C)  risk aversion. 
D)  risk inclination.

Question 13

A piece rate system ________ earnings inequality.

Accepted Answer

A)  has no effect on 
B)  increases 
C)  decreases 
D)  first increases then decreases 
A)  has no effect on 
B)  increases 
C)  decreases 
D)  first increases then decreases

Question 14

Hart, Shleifer, and Vishny (HSV) argue that private prisons have strong incentives to cut costs at the expense of quality, therefore public prisons are better than private prisons. Is there a problem with HSV's argument? If so, explain.

Accepted Answer

HSV assume that cutting quality is the w

Question 15

Public bureaucracies:

Accepted Answer

A)  typically lead to the low-cost outcome. 
B)  are typically just as efficient as private corporations. 
C)  typically have less incentive to minimize costs because there is no profit incentive. 
D)  still typically minimize costs because they are paid higher wages. 
A)  typically lead to the low-cost outcome. 
B)  are typically just as efficient as private corporations. 
C)  typically have less incentive to minimize costs because there is no profit incentive. 
D)  still typically minimize costs because they are paid higher wages.

Question 16

If a firm's owner is better able than the sales staff to bear the risk of a recession, weak incentives:

Accepted Answer

A)  are worse than strong incentives. 
B)  may be better than strong incentives. 
C)  should not be used. 
D)  would not be profitable. 
A)  are worse than strong incentives. 
B)  may be better than strong incentives. 
C)  should not be used. 
D)  would not be profitable.

Question 17

When sales vary for reasons having little to do with hard work, strong incentives may be more appropriate rewards for productivity.

Accepted Answer

A) True 
 B)False

Question 18

Explain tournament theory and include an example of the theory in practice.

Accepted Answer

A tournament is a compensation scheme in

Question 19

Weak incentives typically insulate workers from risk.

Accepted Answer

A) True 
 B)False

Question 20

If rewards are mostly based on luck, the incentive to exert effort will be low.

Accepted Answer

A) True 
 B)False

Exam 22: Managing Incentives

Piece rates increase the incentive to work when output is easy to measure.

Firms with at least one large shareholder ______ pay executives based on relative stock performance.

A tournament system rewards workers based on absolute, not relative, performance.

For-profit prisons should be less costly to operate than public prisons, but these cost savings may come at the expense of lower quality.

Which of the following are problems with a piece rate system? I. The piece rate system might attract the least productive workers. II. Workers might be concerned more about quantity than quality. III. Inevitably, piece rate systems cause wages to rise more than productivity.

A poor teacher who grades on a curve introduces:

Use the following to answer questions: Figure: Piece Rates -(Figure: Piece Rates) Refer to the figure. A piece rate is offered for every 10 bags of wheat that workers fill. Which of the three piece rates plotted in the figure above has the highest dollar value to the firm?

The main advantage of piece rate pay is:

Even though firms and workers can both benefit from piece rates, piece rates are sometimes not implemented because of:

According to the text, how many American workers currently own stock in the companies for which they work ?

Paying executives based on relative stock performance in industry rewards results due to external factors ______ paying executives based on absolute performance in industry.

If your professor is difficult to understand, this is an example of:

A piece rate system ________ earnings inequality.

Hart, Shleifer, and Vishny (HSV) argue that private prisons have strong incentives to cut costs at the expense of quality, therefore public prisons are better than private prisons. Is there a problem with HSV's argument? If so, explain.

Public bureaucracies:

If a firm's owner is better able than the sales staff to bear the risk of a recession, weak incentives:

When sales vary for reasons having little to do with hard work, strong incentives may be more appropriate rewards for productivity.

Explain tournament theory and include an example of the theory in practice.

Weak incentives typically insulate workers from risk.

If rewards are mostly based on luck, the incentive to exert effort will be low.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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