Question 1

Paying car salespeople by commission may lead to:

Accepted Answer

A)  overly aggressive car salespeople and unethical sales pitches. 
B)  salespeople willing to work long hours. 
C)  fewer repeat customers for the car dealership. 
D)  All of these possibilities are correct. 
A)  overly aggressive car salespeople and unethical sales pitches. 
B)  salespeople willing to work long hours. 
C)  fewer repeat customers for the car dealership. 
D)  All of these possibilities are correct.

Question 2

Payment based on luck is:

Accepted Answer

A)  never a good compensation scheme. 
B)  sometimes a good compensation scheme. 
C)  often a good compensation scheme. 
D)  a perfect compensation scheme. 
A)  never a good compensation scheme. 
B)  sometimes a good compensation scheme. 
C)  often a good compensation scheme. 
D)  a perfect compensation scheme.

Question 3

"You get what you pay for, but what you pay for is not always what you get." What does this mean in terms of an incentive scheme?

Accepted Answer

It means that sometimes an incentive sch

Question 4

How might the issues surrounding public and private prisons be similar to those of nonprofit and for-profit nursing homes?

Accepted Answer

A)  For-profit nursing homes might have higher costs than nonprofit nursing homes, but the higher costs are from better patient care. 
B)  For-profit nursing homes might have lower costs than nonprofit nursing homes, but the lower costs might result in poor quality patient care. 
C)  For-profit nursing homes might have higher costs than nonprofit nursing homes, but the higher costs might result in superior patient care. 
D)  Compared with nonprofit nursing homes, for-profit nursing homes are less likely to adapt to changing market conditions. 
A)  For-profit nursing homes might have higher costs than nonprofit nursing homes, but the higher costs are from better patient care. 
B)  For-profit nursing homes might have lower costs than nonprofit nursing homes, but the lower costs might result in poor quality patient care. 
C)  For-profit nursing homes might have higher costs than nonprofit nursing homes, but the higher costs might result in superior patient care. 
D)  Compared with nonprofit nursing homes, for-profit nursing homes are less likely to adapt to changing market conditions.

Question 5

Most law schools are incredibly competitive, with relative class position (determined by grades) having a major impact on a student's ability to get a well-paying job. Which of the following is the most likely unintended consequence of this system?

Accepted Answer

A)  Some students will not try hard since everyone's grades are relative. 
B)  Some students will complain about their grades more often, leading professors to inflate them. 
C)  Some students will work in groups more often. 
D)  Some students will sabotage their peers' study efforts. 
A)  Some students will not try hard since everyone's grades are relative. 
B)  Some students will complain about their grades more often, leading professors to inflate them. 
C)  Some students will work in groups more often. 
D)  Some students will sabotage their peers' study efforts.

Question 6

In professional golf, player earnings are determined by:

Accepted Answer

A)  relative performance. 
B)  absolute performance. 
C)  achieving a predetermined number of strokes below par. 
D)  ability risk. 
A)  relative performance. 
B)  absolute performance. 
C)  achieving a predetermined number of strokes below par. 
D)  ability risk.

Question 7

Ideally, what types of rewards form the best incentives?

Accepted Answer

A)  extrinsic 
B)  intrinsic 
C)  intrinsic coupled with extrinsic 
D)  monetary 
A)  extrinsic 
B)  intrinsic 
C)  intrinsic coupled with extrinsic 
D)  monetary

Question 8

Bjorn is a lazy worker with low productivity who works because he has to, not because he wants to. Amal is a very productive worker, enjoys what he does, and works quickly and accurately. Based on this information, which of the following is TRUE?

Accepted Answer

A)  The piece rate incentive scheme would result in equal productivity for both workers. 
B)  Bjorn should be offered an hourly wage, whereas Amal should be offered a piece rate. 
C)  Amal should be offered an hourly wage, whereas Bjorn should be offered a piece rate. 
D)  An equal hourly wage would be appropriate for both these workers. 
A)  The piece rate incentive scheme would result in equal productivity for both workers. 
B)  Bjorn should be offered an hourly wage, whereas Amal should be offered a piece rate. 
C)  Amal should be offered an hourly wage, whereas Bjorn should be offered a piece rate. 
D)  An equal hourly wage would be appropriate for both these workers.

Question 9

In ideal circumstances, tournaments ________ risk and ________ worker effort with rewards.

Accepted Answer

A)  enhance; link 
B)  reduce; align 
C)  reduce; decrease 
D)  enhance; decrease 
A)  enhance; link 
B)  reduce; align 
C)  reduce; decrease 
D)  enhance; decrease

Question 10

A piece rate is:

Accepted Answer

A)  any payment system that pays workers directly for their input. 
B)  any payment system that pays workers directly for their output. 
C)  any payment paid in pieces to workers. 
D)  the percentage of a payment paid weekly to workers. 
A)  any payment system that pays workers directly for their input. 
B)  any payment system that pays workers directly for their output. 
C)  any payment paid in pieces to workers. 
D)  the percentage of a payment paid weekly to workers.

Question 11

Well-structured tournaments not only encourage competition but also:

Accepted Answer

A)  encourage cooperation. 
B)  discourage cooperation. 
C)  encourage shirking. 
D)  discourage participation. 
A)  encourage cooperation. 
B)  discourage cooperation. 
C)  encourage shirking. 
D)  discourage participation.

Question 12

Monetary rewards are most successful when:

Accepted Answer

A)  they are supported by intrinsic motivation and social status. 
B)  they are supported by social status. 
C)  they are supported by external rewards. 
D)  they are rewarded by intrinsic rewards. 
A)  they are supported by intrinsic motivation and social status. 
B)  they are supported by social status. 
C)  they are supported by external rewards. 
D)  they are rewarded by intrinsic rewards.

Question 13

Sometimes nudging is considered a step toward controlling more of our choices.

Accepted Answer

A) True 
 B)False

Question 14

On American Idol, the winner of the competition gets a recording contract. Suppose an average person is randomly picked as a surprise entrant in the final round. Which of the following risks is most likely to occur in this tournament?

Accepted Answer

A)  environment risk 
B)  sales risk 
C)  risk of recession 
D)  ability risk 
A)  environment risk 
B)  sales risk 
C)  risk of recession 
D)  ability risk

Question 15

Tournaments are useful for rewarding worker effort whenever:

Accepted Answer

A)  external factors, such as the quality of the good and the state of the economy, have little effect on workers' success. 
B)  workers are myopic and unaware that external factors play a significant role on sales. 
C)  workers are utility maximizers primarily concerned about cooperating with their fellow salespeople. 
D)  external factors, such as the quality of the good and the state of the economy, significantly affect workers success. 
A)  external factors, such as the quality of the good and the state of the economy, have little effect on workers' success. 
B)  workers are myopic and unaware that external factors play a significant role on sales. 
C)  workers are utility maximizers primarily concerned about cooperating with their fellow salespeople. 
D)  external factors, such as the quality of the good and the state of the economy, significantly affect workers success.

Question 16

Suppose that a town with too many snakes decides to pay people a bounty for each dead snake. Which of the following best represents the problem with strong incentives?

Accepted Answer

A)  The town's snake population remains stagnant since people really do not like dealing with them. 
B)  The demand curve for snakes will shift left and down. 
C)  The price of snakes will decrease, as they are no longer valued alive. 
D)  Townspeople might get into the business of breeding snakes and selling their dead bodies to the town's officials. 
A)  The town's snake population remains stagnant since people really do not like dealing with them. 
B)  The demand curve for snakes will shift left and down. 
C)  The price of snakes will decrease, as they are no longer valued alive. 
D)  Townspeople might get into the business of breeding snakes and selling their dead bodies to the town's officials.

Question 17

The stronger the incentive scheme, the more it pays to invest in careful monitoring.

Accepted Answer

A) True 
 B)False

Question 18

Tying executive compensation to stock prices may create incentives for:

Accepted Answer

A)  CEOs to work harder and increase the profitability of the firm. 
B)  CEOs to overstate the firm's financial status. 
C)  Enron-type scandals. 
D)  All of these possibilities are correct. 
A)  CEOs to work harder and increase the profitability of the firm. 
B)  CEOs to overstate the firm's financial status. 
C)  Enron-type scandals. 
D)  All of these possibilities are correct.

Question 19

Which of the following is NOT an example of corporate culture?

Accepted Answer

A)  workers that take pride in a job well done 
B)  sports fans celebrating their team's wins 
C)  construction workers getting paid to work overtime 
D)  college students wearing their school colors 
A)  workers that take pride in a job well done 
B)  sports fans celebrating their team's wins 
C)  construction workers getting paid to work overtime 
D)  college students wearing their school colors

Question 20

If the quality of an output is difficult to measure, which of the following can help firms incentivize quality?

Accepted Answer

A)  tournaments 
B)  environment risk 
C)  corporate culture 
D)  piece rate pay 
A)  tournaments 
B)  environment risk 
C)  corporate culture 
D)  piece rate pay

Exam 22: Managing Incentives

Paying car salespeople by commission may lead to:

Payment based on luck is:

"You get what you pay for, but what you pay for is not always what you get." What does this mean in terms of an incentive scheme?

How might the issues surrounding public and private prisons be similar to those of nonprofit and for-profit nursing homes?

Most law schools are incredibly competitive, with relative class position (determined by grades) having a major impact on a student's ability to get a well-paying job. Which of the following is the most likely unintended consequence of this system?

In professional golf, player earnings are determined by:

Ideally, what types of rewards form the best incentives?

Bjorn is a lazy worker with low productivity who works because he has to, not because he wants to. Amal is a very productive worker, enjoys what he does, and works quickly and accurately. Based on this information, which of the following is TRUE?

In ideal circumstances, tournaments ________ risk and ________ worker effort with rewards.

A piece rate is:

Well-structured tournaments not only encourage competition but also:

Monetary rewards are most successful when:

Sometimes nudging is considered a step toward controlling more of our choices.

On American Idol, the winner of the competition gets a recording contract. Suppose an average person is randomly picked as a surprise entrant in the final round. Which of the following risks is most likely to occur in this tournament?

Tournaments are useful for rewarding worker effort whenever:

Suppose that a town with too many snakes decides to pay people a bounty for each dead snake. Which of the following best represents the problem with strong incentives?

The stronger the incentive scheme, the more it pays to invest in careful monitoring.

Tying executive compensation to stock prices may create incentives for:

Which of the following is NOT an example of corporate culture?

If the quality of an output is difficult to measure, which of the following can help firms incentivize quality?

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

In ideal circumstances, tournaments risk and worker effort with rewards.