Question 1

To get family members to behave in certain ways, it is probably best to:

Accepted Answer

A)  pay them a piece rate. 
B)  pay them a fixed hourly rate. 
C)  tie compensation to movement in the stock market. 
D)  give intrinsic motivation. 
A)  pay them a piece rate. 
B)  pay them a fixed hourly rate. 
C)  tie compensation to movement in the stock market. 
D)  give intrinsic motivation.

Question 2

Piece rates do not work well when:

Accepted Answer

A)  workers use tools in production. 
B)  quality is not important. 
C)  quality control is important and simple to perform. 
D)  quality is important but quality control is expensive. 
A)  workers use tools in production. 
B)  quality is not important. 
C)  quality control is important and simple to perform. 
D)  quality is important but quality control is expensive.

Question 3

A good social system aligns self-interest with the social interest.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would be the LEAST likely result of efficient private prisons replacing inefficient public prisons?

Accepted Answer

A)  higher quality and lower cost 
B)  higher quality and higher cost 
C)  lower quality and lower cost 
D)  lower quality and higher costs 
A)  higher quality and lower cost 
B)  higher quality and higher cost 
C)  lower quality and lower cost 
D)  lower quality and higher costs

Question 5

Suppose that a car dealer in California advertises that its sales staff is not paid on commission. Which of the following is correct with regards to the strategy of this advertising?

Accepted Answer

A)  Car dealers who rely on repeat business prefer a low-pressure, informative sales staff. 
B)  Car dealers who rely on selling cars to first-time buyers prefer a lower-pressure, informative sales staff. 
C)  Car dealers who rely on repeat business prefer high-pressure sales tactics. 
D)  Car dealers who rely on selling cars to first-time buyers prefer high-pressure sales tactics. 
A)  Car dealers who rely on repeat business prefer a low-pressure, informative sales staff. 
B)  Car dealers who rely on selling cars to first-time buyers prefer a lower-pressure, informative sales staff. 
C)  Car dealers who rely on repeat business prefer high-pressure sales tactics. 
D)  Car dealers who rely on selling cars to first-time buyers prefer high-pressure sales tactics.

Question 6

Students taking a hard class are more likely to favor professors that grade on:

Accepted Answer

A)  a curve as it reduces ability risk. 
B)  a curve as it reduces environment risk. 
C)  an absolute scale as it reduces ability risk. 
D)  an absolute scale as it reduces environment risk. 
A)  a curve as it reduces ability risk. 
B)  a curve as it reduces environment risk. 
C)  an absolute scale as it reduces ability risk. 
D)  an absolute scale as it reduces environment risk.

Question 7

When a company's employees volunteer in the community while proudly wearing the company uniform it indicates a strong corporate culture that values intrinsic rewards.

Accepted Answer

A) True 
 B)False

Question 8

Pirate captains during the 1600s compensated crewmembers with a form of health insurance. If a member lost a hand or leg or other appendage during a fight, he would get a free prosthetic (e.g., a wooden leg, which were quite expensive even then). What kind of incentive structure does this most closely resemble? (Hint: Those who lost a limb generally did so because they were doing a larger share of the fighting.)

Accepted Answer

A)  hourly rates 
B)  tournaments 
C)  piece rates 
D)  corporate culture 
A)  hourly rates 
B)  tournaments 
C)  piece rates 
D)  corporate culture

Question 9

Which of the following statements is correct?

Accepted Answer

A)  Monetary rewards are most effective when they are supported by extrinsic motivation and measures of social status. 
B)  Monetary rewards are most effective when they are supported by intrinsic motivation and measures of personal achievement. 
C)  Monetary rewards are most effective when they are supported by extrinsic motivation and measures of personal achievement. 
D)  Monetary rewards are most effective when they are supported by intrinsic motivation and measures of social status. 
A)  Monetary rewards are most effective when they are supported by extrinsic motivation and measures of social status. 
B)  Monetary rewards are most effective when they are supported by intrinsic motivation and measures of personal achievement. 
C)  Monetary rewards are most effective when they are supported by extrinsic motivation and measures of personal achievement. 
D)  Monetary rewards are most effective when they are supported by intrinsic motivation and measures of social status.

Question 10

An example of a common "impulse buy" would be:

Accepted Answer

A)  dish detergent. 
B)  ground beef. 
C)  candy. 
D)  bananas. 
A)  dish detergent. 
B)  ground beef. 
C)  candy. 
D)  bananas.

Question 11

Piece rates benefit productive workers by giving them an opportunity to use their skills to make more money and benefit firms by increasing productivity more than wages.

Accepted Answer

A) True 
 B)False

Question 12

A less productive worker would be more attracted to a job with piece rate pay.

Accepted Answer

A) True 
 B)False

Question 13

The CEO of a pharmaceutical sales company wants to find a way to increase both the sales figures as well as the effort level of the company's employees. A lower-level manager suggests that a tournament system that rewards the salesperson with the highest level of sales with a one-time $50,000 bonus would certainly increase both sales and effort across the company. What are the pros and cons of implementing such a program? Should the CEO adopt a program such as this? If so why? If not, why not?

Accepted Answer

A tournament pay scheme that rewards onl

Question 14

Which of the following would create an incentive to keep business meetings short?

Accepted Answer

A)  Make everyone stand up at the meeting. 
B)  Make all the attendees bring their own lunch. 
C)  Make everyone wear a watch. 
D)  Allow only half the attendees to talk. 
A)  Make everyone stand up at the meeting. 
B)  Make all the attendees bring their own lunch. 
C)  Make everyone wear a watch. 
D)  Allow only half the attendees to talk.

Question 15

Explain how piece rate and hourly wage attracts different types of workers. Explain how the two methods may affect earnings inequality.

Accepted Answer

A piece rate system attracts more produc

Question 16

You and Bill Gates are junior executives of a software company. If both of you are in a tournament vying for promotion to CEO, there is likely to be substantial:

Accepted Answer

A)  ability risk. 
B)  environmental risk. 
C)  piece rate risk. 
D)  price risk. 
A)  ability risk. 
B)  environmental risk. 
C)  piece rate risk. 
D)  price risk.

Question 17

______ can benefit from a piece rate pay system.

Accepted Answer

A)  Only firms 
B)  Only workers 
C)  Neither firms nor workers 
D)  Both firms and workers 
A)  Only firms 
B)  Only workers 
C)  Neither firms nor workers 
D)  Both firms and workers

Question 18

Tournaments work best when the risk from the outside environment is ________ the ability risk.

Accepted Answer

A)  greater than 
B)  less than 
C)  equal to 
D)  unrelated to 
A)  greater than 
B)  less than 
C)  equal to 
D)  unrelated to

Question 19

When a teacher grades on a curve, it will increase the incentive to study when:

Accepted Answer

A)  ability risk equals environment risk. 
B)  ability risk is high. 
C)  environment risks are low. 
D)  environment risks are high. 
A)  ability risk equals environment risk. 
B)  ability risk is high. 
C)  environment risks are low. 
D)  environment risks are high.

Question 20

Grading on a curve reduces ________ but increases ________.

Accepted Answer

A)  environment risk; ability risk 
B)  cooperation among students; environment risk 
C)  ability risk; cooperation among students 
D)  ability risk; environment risk 
A)  environment risk; ability risk 
B)  cooperation among students; environment risk 
C)  ability risk; cooperation among students 
D)  ability risk; environment risk

Exam 22: Managing Incentives

To get family members to behave in certain ways, it is probably best to:

Piece rates do not work well when:

A good social system aligns self-interest with the social interest.

Which of the following would be the LEAST likely result of efficient private prisons replacing inefficient public prisons?

Suppose that a car dealer in California advertises that its sales staff is not paid on commission. Which of the following is correct with regards to the strategy of this advertising?

Students taking a hard class are more likely to favor professors that grade on:

When a company's employees volunteer in the community while proudly wearing the company uniform it indicates a strong corporate culture that values intrinsic rewards.

Which of the following statements is correct?

An example of a common "impulse buy" would be:

Piece rates benefit productive workers by giving them an opportunity to use their skills to make more money and benefit firms by increasing productivity more than wages.

A less productive worker would be more attracted to a job with piece rate pay.

Which of the following would create an incentive to keep business meetings short?

Explain how piece rate and hourly wage attracts different types of workers. Explain how the two methods may affect earnings inequality.

You and Bill Gates are junior executives of a software company. If both of you are in a tournament vying for promotion to CEO, there is likely to be substantial:

______ can benefit from a piece rate pay system.

Tournaments work best when the risk from the outside environment is ________ the ability risk.

When a teacher grades on a curve, it will increase the incentive to study when:

Grading on a curve reduces ________ but increases ________.

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

Grading on a curve reduces but increases .