Question 1

Most executives are compensated on the concepts of tournament theory.

Accepted Answer

A) True 
 B)False

Question 2

A weak incentive scheme that incentivizes the wrong thing can be worse than a similar strong incentive scheme.

Accepted Answer

A) True 
 B)False

Question 3

An excellent 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 4

Planning where, when, and how choices are made is sometimes called:

Accepted Answer

A)  choice architecture. 
B)  framing. 
C)  front of the store. 
D)  corporate culture. 
A)  choice architecture. 
B)  framing. 
C)  front of the store. 
D)  corporate culture.

Question 5

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 lowest 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 6

The riskier the payments are to workers, the:

Accepted Answer

A)  more a firm must pay on average. 
B)  less a firm must pay on average. 
C)  more a firm must rely on piece rate pay. 
D)  fewer the workers who will take on work. 
A)  more a firm must pay on average. 
B)  less a firm must pay on average. 
C)  more a firm must rely on piece rate pay. 
D)  fewer the workers who will take on work.

Question 7

An excellent teacher who covers material of average difficulty and grades on an absolute scale 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 8

Tournaments can tie rewards more closely to actions that an agent controls thereby:

Accepted Answer

A)  increasing effort and employee risk. 
B)  reducing shirk and slack in the economy. 
C)  improving productivity and employee pay. 
D)  reducing productivity and employee pay.. 
A)  increasing effort and employee risk. 
B)  reducing shirk and slack in the economy. 
C)  improving productivity and employee pay. 
D)  reducing productivity and employee pay..

Question 9

Monetary rewards are most effective when they are supported by:
I. intrinsic motivation.
II. social status.
III. tournaments.

Accepted Answer

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

Question 10

A "nudge" is a way that governments and other organizations can use small changes in the choice architecture to change or improve decisions.

Accepted Answer

A) True 
 B)False

Question 11

Planning where, when, and how choices are made is sometimes called choice architecture.

Accepted Answer

A) True 
 B)False

Question 12

Tournaments may create ______ if the abilities of the players are ______.

Accepted Answer

A)  ability risk; too equal 
B)  ability risk; highly unequal 
C)  environment risk; lacking 
D)  environment risk; extraordinarily strong 
A)  ability risk; too equal 
B)  ability risk; highly unequal 
C)  environment risk; lacking 
D)  environment risk; extraordinarily strong

Question 13

______ is a compensation scheme in which payment is based on relative performance.

Accepted Answer

A)  Piece rate 
B)  Wage rate 
C)  A tournament 
D)  A competition 
A)  Piece rate 
B)  Wage rate 
C)  A tournament 
D)  A competition

Question 14

As performance pay becomes more common in an economy:

Accepted Answer

A)  wage rates would increase more than productivity in the economy. 
B)  the number of unemployed workers in the economy would also increase. 
C)  the inequality of earnings in the economy would also increase. 
D)  All of the answers are correct. 
A)  wage rates would increase more than productivity in the economy. 
B)  the number of unemployed workers in the economy would also increase. 
C)  the inequality of earnings in the economy would also increase. 
D)  All of the answers are correct.

Question 15

Regardless of the number of cars sold, a small car dealership pays $6,000 to its top-selling salesperson, $5,000 to the second highest, $4,000 to the third highest, and so on. The dealership is using a:

Accepted Answer

A)  piece rate compensation scheme. 
B)  absolute performance compensation scheme. 
C)  tournament compensation scheme. 
D)  pay-for-play compensation scheme. 
A)  piece rate compensation scheme. 
B)  absolute performance compensation scheme. 
C)  tournament compensation scheme. 
D)  pay-for-play compensation scheme.

Question 16

Which famous economist discovered widespread cheating by teachers?

Accepted Answer

A)  Gary Becker 
B)  Paul Krugman 
C)  Steven Levitt 
D)  Emily Oster 
A)  Gary Becker 
B)  Paul Krugman 
C)  Steven Levitt 
D)  Emily Oster

Question 17

Corporate culture is the system of pay incentives that is used in an organization.

Accepted Answer

A) True 
 B)False

Question 18

Ability risk is a factor prevalent in:

Accepted Answer

A)  piece rate pay. 
B)  wage rate pay. 
C)  tournament pay. 
D)  effort-based pay. 
A)  piece rate pay. 
B)  wage rate pay. 
C)  tournament pay. 
D)  effort-based pay.

Question 19

Which is the best example of the problem of strong employee incentives with poor monitoring with respect to improving student performance by standardized testing?

Accepted Answer

A)  Schoolteachers and administrators improved student test scores by changing incorrect answers. 
B)  Union officials overfunded teacher pension plans with state and local money. 
C)  Students were sharing answers by text messaging. 
D)  Teachers were not "clocking out" when on lunch break. 
A)  Schoolteachers and administrators improved student test scores by changing incorrect answers. 
B)  Union officials overfunded teacher pension plans with state and local money. 
C)  Students were sharing answers by text messaging. 
D)  Teachers were not "clocking out" when on lunch break.

Question 20

Explain what is meant by the term incentives, and why it is important to get incentives right.

Accepted Answer

Incentives are costs and benefits that i

Exam 22: Managing Incentives

Most executives are compensated on the concepts of tournament theory.

A weak incentive scheme that incentivizes the wrong thing can be worse than a similar strong incentive scheme.

An excellent teacher who grades on a curve introduces:

Planning where, when, and how choices are made is sometimes called:

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 lowest dollar value to the firm?

The riskier the payments are to workers, the:

An excellent teacher who covers material of average difficulty and grades on an absolute scale introduces:

Tournaments can tie rewards more closely to actions that an agent controls thereby:

Monetary rewards are most effective when they are supported by: I. intrinsic motivation. II. social status. III. tournaments.

A "nudge" is a way that governments and other organizations can use small changes in the choice architecture to change or improve decisions.

Planning where, when, and how choices are made is sometimes called choice architecture.

Tournaments may create ______ if the abilities of the players are ______.

______ is a compensation scheme in which payment is based on relative performance.

As performance pay becomes more common in an economy:

Regardless of the number of cars sold, a small car dealership pays $6,000 to its top-selling salesperson, $5,000 to the second highest, $4,000 to the third highest, and so on. The dealership is using a:

Which famous economist discovered widespread cheating by teachers?

Corporate culture is the system of pay incentives that is used in an organization.

Ability risk is a factor prevalent in:

Which is the best example of the problem of strong employee incentives with poor monitoring with respect to improving student performance by standardized testing?

Explain what is meant by the term incentives, and why it is important to get incentives right.

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

Tournaments may create if the abilities of the players are .