Question 1

Tournaments tie rewards more closely to actions that an agent controls than absolute performance standards, thereby improving productivity and pay.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following programs would NOT be favored by economists Hart, Shleifer, and Vishny and why?

Accepted Answer

A)  Public prisons replace private prisons because tight budget constraints reduce the incentive to increase quality. 
B)  Public prisons replace private prisons because the profit motive increases the incentive to increase quality. 
C)  Private prisons replace public prisons because the profit motive encourages cost-cutting at the expense of quality. 
D)  Private prisons replace pubic prisons because slack budget constraints increase the incentive to increase quality. 
A)  Public prisons replace private prisons because tight budget constraints reduce the incentive to increase quality. 
B)  Public prisons replace private prisons because the profit motive increases the incentive to increase quality. 
C)  Private prisons replace public prisons because the profit motive encourages cost-cutting at the expense of quality. 
D)  Private prisons replace pubic prisons because slack budget constraints increase the incentive to increase quality.

Question 3

Which of the following may make weak incentives mutually profitable for both owner and sales staff?

Accepted Answer

A)  If the sales staff is better able than the owner to bear the risk of a recession. 
B)  If the owner is better able than the sales staff to bear the risk of a recession. 
C)  If the owner and sales staff can equally bear the risk of a recession. 
D)  If neither the owner nor the sales staff has to bear the risk of a recession. 
A)  If the sales staff is better able than the owner to bear the risk of a recession. 
B)  If the owner is better able than the sales staff to bear the risk of a recession. 
C)  If the owner and sales staff can equally bear the risk of a recession. 
D)  If neither the owner nor the sales staff has to bear the risk of a recession.

Question 4

When are hourly rates preferred to piece rates?

Accepted Answer

A)  when it is difficult to measure output 
B)  when employees demand it 
C)  when wage equality isn't very important 
D)  when one person is much better than the rest 
A)  when it is difficult to measure output 
B)  when employees demand it 
C)  when wage equality isn't very important 
D)  when one person is much better than the rest

Question 5

Sometimes small changes in how a choice is presented, or "framed," can change behavior.

Accepted Answer

A) True 
 B)False

Question 6

Managers of businesses and sports teams must think about and choose incentives.

Accepted Answer

A) True 
 B)False

Question 7

Suppose college administrators make it a top priority of the institution to increase the quality of their professors' teaching. They also believe in the power of incentives, and institute a system where teachers receive bonuses for high teaching evaluations. Explain whether this incentive scheme will help to increase the quality of teaching at the institution.

Accepted Answer

Paying for high teaching evaluations wil

Question 8

Which of the following would most likely be an ineffective intrinsic incentive?

Accepted Answer

A)  paying a daughter to do the dishes 
B)  enabling an employee to identify with a firm's culture 
C)  a promotion to a job that increases status in society 
D)  compensating employees with company stock 
A)  paying a daughter to do the dishes 
B)  enabling an employee to identify with a firm's culture 
C)  a promotion to a job that increases status in society 
D)  compensating employees with company stock

Question 9

Paying sales workers based on a tournament reduces environmental risk.

Accepted Answer

A) True 
 B)False

Question 10

Piece rate systems work best when it is hard to evaluate the worker's quality of output.

Accepted Answer

A) True 
 B)False

Question 11

The best definition of corporate culture is that it

Accepted Answer

A)  describes the diversity of attitudes, experiences, and beliefs within an organization. 
B)  is the beliefs and ideas about what kinds of goals a corporation should pursue. 
C)  is the shared collection of values and norms that govern how people interact in an organization of firm. 
D)  is the result of the policies and procedures outlined in the employee handbook. 
A)  describes the diversity of attitudes, experiences, and beliefs within an organization. 
B)  is the beliefs and ideas about what kinds of goals a corporation should pursue. 
C)  is the shared collection of values and norms that govern how people interact in an organization of firm. 
D)  is the result of the policies and procedures outlined in the employee handbook.

Question 12

Having workers stand during a meeting is an example of a(n):

Accepted Answer

A)  monetary incentive. 
B)  nonmonetary incentive. 
C)  ironic incentive. 
D)  iconic incentive. 
A)  monetary incentive. 
B)  nonmonetary incentive. 
C)  ironic incentive. 
D)  iconic incentive.

Question 13

The closer "what you pay for" is to "what you want," then the more you can rely on strong incentives.

Accepted Answer

A) True 
 B)False

Question 14

A good compensation scheme:

Accepted Answer

A)  ties rewards to actions that an agent does not control. 
B)  ties rewards to actions that an agent controls. 
C)  will not increase performance in a poor economy. 
D)  is based on luck. 
A)  ties rewards to actions that an agent does not control. 
B)  ties rewards to actions that an agent controls. 
C)  will not increase performance in a poor economy. 
D)  is based on luck.

Question 15

A very motivated and skilled salesperson may not have good sales if which of the following factors occurs?
I. The product is of a low quality.
II. The economy is in a recession.
III. The price of the product is too high compared with competing products.

Accepted Answer

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

Question 16

When sales depend heavily on outside factors such as the state of the economy, strong incentives may:

Accepted Answer

A)  be more expensive than they are worth. 
B)  be less expensive than they are worth. 
C)  equal what they are worth. 
D)  be worthless. 
A)  be more expensive than they are worth. 
B)  be less expensive than they are worth. 
C)  equal what they are worth. 
D)  be worthless.

Question 17

In Bangladesh, Professor Mohamed Yunus started the Grameen Bank from which poor borrowers (mostly women) who do not have collateral are given small loans as seed money for businesses or other projects. Loans are provided to groups of five women, who receive the loans sequentially. Once the first borrower has established a repayment schedule, the second borrower receives her money, and so on. How do you think an organization such as the Grameen Bank might ensure that the borrowers are indeed creditworthy? Remember that the bank does not have any information about the borrowers' creditworthiness and it is in the group's best interest to maintain a good loan repayment schedule so that they are eligible for bigger loans as time progresses.

Accepted Answer

By asking the borrowers to self-select t

Question 18

Job X pays a yearly salary of $55,000, regardless of the state of the economy. Job Y pays a yearly salary of $10,000 in a bad economy and $70,000 in a good economy. The probability of a bad economy is 0.30. Which job would most people prefer?

Accepted Answer

A)  Job Y because the expected payoff of $80,000 is greater than $55,000. 
B)  Job X because $55,000 exceeds the expected payoff of Job Y of $52,000. 
C)  Job X because $55,000 exceeds the expected payoff of Job Y by $6,000. 
D)  Job Y because the expected payoff of $70,000 is greater than $55,000. 
A)  Job Y because the expected payoff of $80,000 is greater than $55,000. 
B)  Job X because $55,000 exceeds the expected payoff of Job Y of $52,000. 
C)  Job X because $55,000 exceeds the expected payoff of Job Y by $6,000. 
D)  Job Y because the expected payoff of $70,000 is greater than $55,000.

Question 19

Nudging is never considered a form of manipulation.

Accepted Answer

A) True 
 B)False

Question 20

Suppose you run a company in an industry with a great deal of sales volatility. Some weeks are very good and some are very bad. Explaining why this occurs is difficult to do and even harder to predict. If you want to provide a work incentive to your employees, which incentive structure should you focus on when compensating employees?

Accepted Answer

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

Exam 22: Managing Incentives

Tournaments tie rewards more closely to actions that an agent controls than absolute performance standards, thereby improving productivity and pay.

Which of the following programs would NOT be favored by economists Hart, Shleifer, and Vishny and why?

Which of the following may make weak incentives mutually profitable for both owner and sales staff?

When are hourly rates preferred to piece rates?

Sometimes small changes in how a choice is presented, or "framed," can change behavior.

Managers of businesses and sports teams must think about and choose incentives.

Which of the following would most likely be an ineffective intrinsic incentive?

Paying sales workers based on a tournament reduces environmental risk.

Piece rate systems work best when it is hard to evaluate the worker's quality of output.

The best definition of corporate culture is that it

Having workers stand during a meeting is an example of a(n):

The closer "what you pay for" is to "what you want," then the more you can rely on strong incentives.

A good compensation scheme:

A very motivated and skilled salesperson may not have good sales if which of the following factors occurs? I. The product is of a low quality. II. The economy is in a recession. III. The price of the product is too high compared with competing products.

When sales depend heavily on outside factors such as the state of the economy, strong incentives may:

Job X pays a yearly salary of $55,000, regardless of the state of the economy. Job Y pays a yearly salary of $10,000 in a bad economy and $70,000 in a good economy. The probability of a bad economy is 0.30. Which job would most people prefer?

Nudging is never considered a form of manipulation.

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