1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 1: Why might performance compensation caps be bad? (p.11) a) Different pay rates promote dissent b) Compensation caps can discourage employees from being productive after the cap. c) Compensation caps can discourage employees from being productive before the cap d) Both b and c Ans: b) Compensation caps can discourage employees from being productive after the cap. 1 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 3: Which of the following in NOT one of the three problem-solving principles laid out in the lecture? a) Under whose jurisdiction is the problem? b) Who is making the bad decision? c) Does the decision maker have enough information to make a good decision? d) Does the decision maker have the incentive to make a good decision? Ans: a) Under whose jurisdiction is the problem? 22 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 4: Why might it be bad for hotels to not charge higher prices when rooms are in higher demand? a) Arbitrageurs might establish a black market by reserving rooms and then selling the reservations to customers b) Rooms may be rationed c) Without profit from these high times, hotels would have less of an incentive to build expand, and making the long run scarcity problem even worse d) All of the above Ans: d) All of the above 3 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 5: The rational-actor paradigm assumes the people do NOT… a) Act rationally b) Use rules of thumb c) Act optimally d) Act self-interestedly Ans: b) Use rules of thumb 43 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 6: The problem-solving principles analyse firm problems a) From the organization’s point of view b) From the manager’s point of view c) From the worker’s point of view d) Both a and b Ans: a) From the organization’s point of view 5 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 7: Why might welfare for low-income households reduce the propensity to work? a) It will not b) It reduces the incentive to work c) It is unfair d) It encourages jealousy Ans: b) It reduces the incentive to work (however ‘a’ has some merit as well) 64 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 9: What might happen if a car dealership is awarded a bonus by the manufacturer for selling a certain number of cars monthly, but the dealership is just short of that quota near the end of the month? a) It may sell the remaining cars at huge discounts to hit the quota b) It creates an incentive to sell cars from different manufacturers c) It would ruin the relationship between dealer and manufacturer Ans: a) It may sell the remaining cars at huge discounts to hit the quota 7 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 2-5: When Kraft recently bid $16.7 billion for Cadbury, Cadbury’s market value rose, but Kraft’s market value fell by more. What does this tell you about the value-creating potential of the deal? Possible Ans: Little wealth was created. The assets of Kraft were not moved from a low value position to a higher value position. This offset the value Cadbury’s assets gained. (Think about the motives for the deal if this is the case) 85 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 1: An individual’s value for a good or service is… a) The amount of money they used to pay for a good b) The amount of money they are willing to pay for it c) The amount of money they have to spend on goods d) None of the above Ans: b) The amount of money they are willing to pay for it 9 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 4: Government regulation… a) Provides incentives to conduct business in an illegal black market b) Play no role in generating wealth c) Is the best way to eliminate poverty d) Does not enforce property rights Ans: a) Provides incentives to conduct business in an illegal black market 106 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 6: A price ceiling… a) Is a government-set maximum price b) Is an implicit tax on producers and an implicit subsidy to consumers c) Will create a surplus d) Causes an increase in consumer and producer surplus Ans: b) Is an implicit tax on producers and an implicit subsidy to consumers 11 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 8: A consumer values a car at $30,000 and it costs a producer $20,000 to make the same car. If the transaction is completed at $24,000, the transaction will generate: a) No surplus b) $4,000 of seller surplus, unknown amount of buyer surplus c) $6,000 of seller surplus, $4,000 buyer surplus d) $6,000 worth of buyer surplus and unknown amount of seller surplus Ans: c) $6,000 of seller surplus, $4,000 buyer surplus 127 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July A consumer values a car at $525,000 and a producer values the same car at $485,000. If sales tax is 8% and is levied on the seller, then the seller’s bottomline price is (rounded to the nearest thousand) a) 527,000 b) 524,000 c) 525,000 d) 500,000 Ans: b) 524,000 13 Copyright ©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. ©Manuel Gutjahr/Vetta/Getty Images Tutorial - 10 July Question 10: Efficiency implies opportunity a) Always b) Never c) Only if accompanied by secure property rights d) None of the above Ans: b) Never (however this answer applied only to this section – others may argue ‘d’ is the correct answer) 14