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Multiple Choice Quiz
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1

In a competitive spot labor market:
A)workers are paid on the spot in cash
B)the interaction of workers, who decide how many hours to work, and firms, that decide how many workers to hire at give wages, determine the equilibrium wage and employment in each period.
C)the wage equals the worker's value of marginal product.
D)both (A) and (C).
E)both (B) and (C).
2

In the simple model where utility of a piece-rate worker depends on output, monitoring efforts, and the pain of producing q units and the utility of a time-rate worker depends on the minimum output a worker can produce and keep his or her job and the pain associated with producing that level of output:
A)highly able workers will sort into piece-rate jobs.
B)highly able workers will sort into time-rate jobs.
C)workers in time-rate jobs, regardless of their ability, will all receive the same level of utility.
D)both (A) and (C).
E)both (B) and (C).
3

Profit-sharing:
A)redistributes part of the firm's profits back to the workers.
B)is a piece-rate system for a group of workers.
C)creates potential free-riding problems because an individual worker's pay is not directly tied to his or her productivity.
D)is found to increase productivity.
E)all of the above.
4

Tournament pay schemes:
A)pay workers based on their absolute level of productivity.
B)pay workers based on their relative level of productivity.
C)occur when a firm's output is easy to measure.
D)both (A) and (C).
E)both (B) and (C).
5

Tournaments are predicted to:
A)elicit more effort the greater is the spread between the pay of the "winner" and the "loser" of the tournament.
B)provide an incentive to collude among participants in order to reduce their work effort.
C)potentially create an incentive for workers to sabotage competitors efforts rather than increase their own efforts.
D)all of the above.
E)none of the above.
6

A principle-agent problem is likely to occur:
A)when the person who runs the firm is not the owner.
B)when multiple persons own and operate a firm.
C)when one person owns and operates a firm.
D)under a tournament pay scheme.
7

A problem with a delayed compensation contract is that:
A)a firm has an incentive to employ a worker longer than what is economically efficient.
B)firms have an incentive to exploit workers by letting them go after their "low-wage" period is over.
C)it is only effective in small family-owned firms where workers plan to work a long time.
D)it is only effective in jobs where monitoring of work effort is relatively easy.
E)none of the above.
8

The upward-sloping age-earnings profile can be explained by:
A)delayed compensation contracts.
B)the efficiency wage model.
C)incentive tournaments.
D)both (A) and (C).
E)both (B) and (C).
9

The efficiency wage hypothesis states that firms can increase productivity and profits by paying:
A)higher wages.
B)lower wages.
C)wages that vary substantially between comparable workers.
D)wages that vary relatively little between high and low ability workers.
10

In the efficiency wage model, the firm must:
A)decide only on the employment level.
B)decide only on the wage level.
C)decide jointly the wage and employment level.
D)take explicit account of the labor market conditions existing outside the firm.





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