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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

Under fairly straightforward conditions, the utility of piece-rate workers depends on their ability and their pain of producing output while the utility of time-rate workers depends on the minimum output a worker can produce and keep his or her job. Under such conditions,
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 crude 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)has been found empirically 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 each worker's contribution to the firm's output is easy to measure.
D)both (A) and (C).
E)both (B) and (C).
5

Tournaments
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)potentially creates an incentive for anyone who believes he or she is going to lose the tournament to stop providing effort.
E)all of the above.
6

A principle-agent problem is likely to occur
A)when the person who makes decisions regarding firm operations 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

One 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 bonding critique is a criticism against the efficiency wage model because workers should be willing to
A)work harder for less pay.
B)provide collateral to firms in order to secure a high-paying job.
C)tradeoff a higher wage for fewer hours of work.
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

Dual labor markets arise out of an efficiency wage model because
A)workers do not want to move between the two sectors.
B)there are not enough high wage jobs to allow for wage equalization between sectors.
C)some workers are not productive.
D)monitoring all workers in both sectors is prohibitively expensive.





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