Question 1

Corporate culture is the:

Accepted Answer

A)  formal interactions of employees and managers. 
B)  shared collection of values and norms that govern how people interact in an organization or firm. 
C)  easiest aspect of the firm to manage. 
D)  typical extrinsic reward mechanism used in corporations. 
A)  formal interactions of employees and managers. 
B)  shared collection of values and norms that govern how people interact in an organization or firm. 
C)  easiest aspect of the firm to manage. 
D)  typical extrinsic reward mechanism used in corporations.

Question 2

Pay for relative performance:

Accepted Answer

A)  is a strong incentive. 
B)  reduces the risk from internal factors. 
C)  eliminates the incentive to cheat. 
D)  more closely ties the quality of the product to employee rewards. 
A)  is a strong incentive. 
B)  reduces the risk from internal factors. 
C)  eliminates the incentive to cheat. 
D)  more closely ties the quality of the product to employee rewards.

Question 3

The usual argument against government bureaucracy is that:

Accepted Answer

A)  with budget constraints public bureaucracies won't have an incentive to maintain sufficient quality. 
B)  with budget constraints public bureaucracies will have to cut costs at the expense of quality. 
C)  without the profit incentive public bureaucracies will have to increase costs to maintain the quality. 
D)  without the profit incentive public bureaucracies won't have an incentive to cut costs. 
A)  with budget constraints public bureaucracies won't have an incentive to maintain sufficient quality. 
B)  with budget constraints public bureaucracies will have to cut costs at the expense of quality. 
C)  without the profit incentive public bureaucracies will have to increase costs to maintain the quality. 
D)  without the profit incentive public bureaucracies won't have an incentive to cut costs.

Question 4

Executive pay based on relative performance ties compensation more closely to the effort and ability of the executive than pay schemes that are tied to the firm's absolute stock price.

Accepted Answer

A) True 
 B)False

Question 5

Safelite Glass Corporation increased productivity by 44% by:

Accepted Answer

A)  paying workers a bonus for showing up to work early. 
B)  hiring more managers to monitor worker effort. 
C)  paying workers to stay home if they are sick. 
D)  paying workers directly for their output. 
A)  paying workers a bonus for showing up to work early. 
B)  hiring more managers to monitor worker effort. 
C)  paying workers to stay home if they are sick. 
D)  paying workers directly for their output.

Question 6

A good social system aligns self-interest with the organization's interest.

Accepted Answer

A) True 
 B)False

Question 7

Consider the two statements:
I. The closer "what you pay for" is to "what you want," then the more you can rely on strong incentives.
II. If you can't bridge the gap between "what you pay for" and "what you want" then strong incentive schemes can be better than weak incentive schemes.

Accepted Answer

A)  I is true; II is false 
B)  I is false; II is true 
C)  I and II are both true. 
D)  I and II are both false. 
A)  I is true; II is false 
B)  I is false; II is true 
C)  I and II are both true. 
D)  I and II are both false.

Question 8

Many businesses compensate their sales people not on their overall performance, but on their performance relative to their peers. This is an example of:

Accepted Answer

A)  piece rate pay. 
B)  salary pay. 
C)  compensation rate pay. 
D)  a tournament. 
A)  piece rate pay. 
B)  salary pay. 
C)  compensation rate pay. 
D)  a tournament.

Question 9

The famous economist ________ studied teacher cheating in ________ public schools.

Accepted Answer

A)  Steven Levitt; Chicago 
B)  Carl Menger; Detroit 
C)  Robert Barro; Boston 
D)  Joseph Schumpeter; Philadelphia 
A)  Steven Levitt; Chicago 
B)  Carl Menger; Detroit 
C)  Robert Barro; Boston 
D)  Joseph Schumpeter; Philadelphia

Question 10

Careful design of an incentive scheme can narrow the gap between:

Accepted Answer

A)  what you pay for and what you want. 
B)  effort and output. 
C)  what you pay for and what you do not pay for. 
D)  what you want and what you do not pay for. 
A)  what you pay for and what you want. 
B)  effort and output. 
C)  what you pay for and what you do not pay for. 
D)  what you want and what you do not pay for.

Question 11

What is the concern with private prisons?

Accepted Answer

A)  Private prisons may cut costs to increase profit at the expense of prisoner rehabilitation programs, civil rights, and safety. 
B)  The increased efficiency of private prisons may put public prisons out of business. 
C)  Private prisons will cost taxpayers too much money to operate because they will cut costs in the short run and decrease recidivism rates. 
D)  Private prisons are likely to overemphasize quality and cost taxpayers too much money in the long run. 
A)  Private prisons may cut costs to increase profit at the expense of prisoner rehabilitation programs, civil rights, and safety. 
B)  The increased efficiency of private prisons may put public prisons out of business. 
C)  Private prisons will cost taxpayers too much money to operate because they will cut costs in the short run and decrease recidivism rates. 
D)  Private prisons are likely to overemphasize quality and cost taxpayers too much money in the long run.

Question 12

CEOs in the 1980s were given much stronger incentives to increase their firm's stock price by receiving:

Accepted Answer

A)  an extraordinary amount of salary. 
B)  stock options. 
C)  a lucrative benefit package. 
D)  an annual vacation package. 
A)  an extraordinary amount of salary. 
B)  stock options. 
C)  a lucrative benefit package. 
D)  an annual vacation package.

Question 13

A piece rate is:

Accepted Answer

A)  the discounted present value of a day's worth of production output. 
B)  an hourly rate paid to mid-level managers. 
C)  a method to compensate workers for the number of units of output they produce. 
D)  the interest rate paid to finance a firm's output costs. 
A)  the discounted present value of a day's worth of production output. 
B)  an hourly rate paid to mid-level managers. 
C)  a method to compensate workers for the number of units of output they produce. 
D)  the interest rate paid to finance a firm's output costs.

Question 14

Economists think that what matters for choices are not prices and incomes.

Accepted Answer

A) True 
 B)False

Question 15

Two students are given a project to work on together. Each student could either work or shirk. There is no individual accountability; each student receives the same grade regardless of how much work he or she contributes. One student is a weak student who prefers partying and the other is a serious student who prefers working hard. What is the most likely outcome in this scenario?

Accepted Answer

A)  The serious student will end up completing most of the project alone. 
B)  The weak student will end up completing most of the project alone. 
C)  Both students will work equally hard on the project. 
D)  Neither student will complete the project. 
A)  The serious student will end up completing most of the project alone. 
B)  The weak student will end up completing most of the project alone. 
C)  Both students will work equally hard on the project. 
D)  Neither student will complete the project.

Question 16

Rajesh owns a pizza shop and pays his workers per pizza made. His ingredients are fresh and the recipe is good but he has few repeat customers because his pizzas are hastily made. He wants to redesign his incentive scheme. What would you suggest that Rajesh do?

Accepted Answer

A)  pay a bonus tied to increased sales and customer satisfaction 
B)  switch to an hourly wage 
C)  continue paying the workers per pizza made 
D)  provide an extra bonus based on worker productivity 
A)  pay a bonus tied to increased sales and customer satisfaction 
B)  switch to an hourly wage 
C)  continue paying the workers per pizza made 
D)  provide an extra bonus based on worker productivity

Question 17

In schools, ability risk can be mitigated in tournaments by:

Accepted Answer

A)  using an absolute grading scale. 
B)  grading students relative to each other. 
C)  grouping students with similar abilities together. 
D)  standardizing test scores. 
A)  using an absolute grading scale. 
B)  grading students relative to each other. 
C)  grouping students with similar abilities together. 
D)  standardizing test scores.

Question 18

Which of the following risks increases when a bad teacher grades on an absolute scale?

Accepted Answer

A)  ability risk 
B)  environment risk 
C)  incentive risk 
D)  competition risk 
A)  ability risk 
B)  environment risk 
C)  incentive risk 
D)  competition risk

Question 19

Two students are given a project to work on together. Each student could either work or shirk. There is no individual accountability; each student receives the same grade regardless of how much work he or she contributes. One student is a weak student who prefers partying and the other is a serious student who prefers working hard. How can the teacher adjust the incentive scheme to ensure equal effort by both students?

Accepted Answer

A)  Ask each student to evaluate the other and use that assessment in grading the project. 
B)  Ask the more serious student to put in as much effort as possible. 
C)  Ask the weaker student to put in as much effort as possible. 
D)  Leave the incentive scheme as is-the students will automatically put in equal effort. 
A)  Ask each student to evaluate the other and use that assessment in grading the project. 
B)  Ask the more serious student to put in as much effort as possible. 
C)  Ask the weaker student to put in as much effort as possible. 
D)  Leave the incentive scheme as is-the students will automatically put in equal effort.

Question 20

If one cannot monitor prison quality then privatizing prisons would most likely lead to:
I. lower-cost prisons.
II. higher-quality prisons.
III. less guard-inmate violence.

Accepted Answer

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

Exam 22: Managing Incentives

Corporate culture is the:

Pay for relative performance:

The usual argument against government bureaucracy is that:

Executive pay based on relative performance ties compensation more closely to the effort and ability of the executive than pay schemes that are tied to the firm's absolute stock price.

Safelite Glass Corporation increased productivity by 44% by:

A good social system aligns self-interest with the organization's interest.

Consider the two statements: I. The closer "what you pay for" is to "what you want," then the more you can rely on strong incentives. II. If you can't bridge the gap between "what you pay for" and "what you want" then strong incentive schemes can be better than weak incentive schemes.

Many businesses compensate their sales people not on their overall performance, but on their performance relative to their peers. This is an example of:

The famous economist ________ studied teacher cheating in ________ public schools.

Careful design of an incentive scheme can narrow the gap between:

What is the concern with private prisons?

CEOs in the 1980s were given much stronger incentives to increase their firm's stock price by receiving:

A piece rate is:

Economists think that what matters for choices are not prices and incomes.

Rajesh owns a pizza shop and pays his workers per pizza made. His ingredients are fresh and the recipe is good but he has few repeat customers because his pizzas are hastily made. He wants to redesign his incentive scheme. What would you suggest that Rajesh do?

In schools, ability risk can be mitigated in tournaments by:

Which of the following risks increases when a bad teacher grades on an absolute scale?

If one cannot monitor prison quality then privatizing prisons would most likely lead to: I. lower-cost prisons. II. higher-quality prisons. III. less guard-inmate violence.

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

Filters

The famous economist studied teacher cheating in public schools.