Tutorial 8, Week 9Q PDF

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ECW2141 Semester 1, 2016 Tutorial 8, Week 9 Multiple Choice Question 1. The principal-agent problem arises primarily because: a. b. c. d.

principals and agents work in a team, leading to free-rider problems principals and agents have common interests principals pursue some of their own objectives that may conflict with the objectives of the agents agents pursue some of their own objectives that may conflict with the objectives of the principals

2. Which one of the following best represents the principal-agent problem in the employeremployee relationship? a. b. c. d.

An employee works during a paid lunch hour in order to leave work one hour early An employer fails to provide safety goggles to a worker as required by occupational safety and health legislation a worker leaves work early without permission A worker opts for early retirement in response to the firm’s incentive plan

3. Compensation paid in proportion to the value of sales best describes: a. b.

piece rates commissions

c. d.

time rates bonuses

4. Which of the following best exemplifies a piece-rate compensation scheme? a. Jose’s pay is proportional to the number of wiring harnesses he assembles each day b. Carla’s pay is proportional to the value of her sales at the dress shop each month c. Stan’s pay is proportional to the number of his textbooks sold each year d. Louise’s pay is proportional to the number of hours she works each month 5. Tournament pay: a. b. c. d.

reduces profits because of the excessive pay to chief executive officers implied by such plans may help to rationalize why some ineffective senior executives continue to be employed by a firm explains why “hostile” corporate takeovers occur explains why chief executive officers typically serve long periods at the top of their companies

6. Raises and promotions may be viewed as a form of: a. b.

profit-sharing commissions and royalties

c. d.

piece rate pay tournament pay

7. According to efficiency wage models, the firm’s profits will increase whenever the wage causes: a.

worker productivity to increase by a larger proportion than the wage increase

b.

worker productivity to increase

c.

worker turnover to fall

d.

worker nutrition to increase

8. One implication of efficiency wage models is that: a. b. c. d.

firms pay wages below the market-clearing rate an excess supply of labor may be created an excess demand for labor may be created CEO contracts will contain golden parachute clauses

9. Which one of the following is not typically offered as an explanation for efficiency wages? a. An employer will not pay a wage that exceeds the market rate b. A higher wage may reduce turnover c. A higher wage may allow lower income workers to afford better nutrition that increases their stamina d. The higher wage may be perceived by workers as raising the opportunity cost of shirking Essay Question Question 1 Some evidence exists for cobweb adjustments in markets such as lawyers and engineers. Using an appropriate diagram, explain how one might observe periods of excess demand followed by periods of excess supply. What is the criticism against this model?...