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EXAM 1 Answer Sheet Name_____________________________________________
1. 28. 55.
2. 29. 56.
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22. 49.
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26. 53.
27. 54.
ECON 710 EXAM 1 Choose the correct answer for each question.
1. In sum Organizational Architecture is principally concerned with:
a. dealing with employees who are sometimes irrational.
b. motivating employees to make choices that increase a firm’s value.
c. choosing the right resource and product markets to increase a firm’s value.
d. organizing people into different groups based on their work preferences.
e. all the above.
2. Traditional Economics typically assumes that human beings:
a. prefer a mixture of 70 percent leisure hours to 30 percent work hours most of the time.
b. are utility maximizers.
c. enjoy their work.
d. always look for ways to express themselves in their jobs.
e. none of the above.
3. Economists prefer the traditional economic model of human behavior mostly because:
a. it is allows for making predictions about human behavior.
b. it allows for perceptive reasoning as an explanation of human behavior.
c. it is a way to understand human beings when they are not being totally rational.
d. all the above.
e. none of the above.
4. The new Behavioral Economics model assumes that individuals are:
a. emotional and make mistakes.
b. rational.
c. selfish.
d. automated.
e. none of the above.
5. Who is considered the leading authority on behavioral economics:
A. Milton Friedman.
B. Austin Goolsby.
C. Ronald Coase.
D. Richard Thaler.
E. All are authorities on Behavioral Economics.
6. Which of the following models of behavior is closest to the traditional economic model of behavior:
A. Product-of-the-environment.
B. Only Money matters.
C. Good Citizen.
D. Happy is Productive.
E. Workaholic.
7. The traditional economic model of behavior suggests that criminals:
A. are irrational.
B. do not have a social conscience.
C. weight the benefits and costs of their criminal activity.
D. usually commit crimes on impulse.
E. all the above.
8. Criticisms of the Happy-is-Productive model include:
A. empirical research strongly suggests otherwise.
B. employees are never happy when they are at work.
C. managers never attempt to keep employees happy in the workplace.
D.
All the above.
E. none of the above.
9. The Good Citizen Model of behavior suggests:
A. that some workers will want to become managers at some point.
B. that there is no reason to have incentive pay for workers.
C. that managers do not need to provide feedback to their employees.
D. that employees will most likely report worker shirking to their supervisors.
E. all the above.
10. The traditional economic approach to behavior suggests that:
A. employees will always want to do a good job.
B. managers may or may not assume that individuals are happy in the workplace.
C. managers should assume that employees are there only for a paycheck.
D. managers can motivate desired behavior by establishing appropriate incentives.
E. all the above.
11. Which of the following is not an element of the traditional economic view of behavior:
A. Individuals are irrational.
B. individuals respond to opportunity costs.
C. individuals act at the margin,
D. All are elements of the economic view.
E. none of the above.
12. Economic Darwinism suggests that:
A. only corporations will likely survive in the long run.
B. organizational architecture is necessary for all firms to survive in the long run.
C. the government may have to support some firms that are necessary for national defense.
D. All the above.
E. only the fittest firms, as measured by their profitability, will survive in the long run.
13. Market prices would be considered a piece of:
A. scientific knowledge.
B. Assembled knowledge.
C. Idiosyncratic Knowledge.
D. General Knowledge.
E. none of the above.
14. The price elasticity of short-run supply curves tends to be:
A. more elastic than for long-run supply curves.
B. less elastic than for long-run supply curves.
C. more income elastic than for long-run supply curves.
D. less income elastic than for long-run supply curves.
E. less price elastic than for their corresponding demand curves.
15. Which of the following is not a part of the Organizational Architecture Model:
A. the assignment of decision rights.
B. a performance reward system.
C. a sufficient fringe benefit package for employees.
D. a performance evaluation system.
E. All are parts of the O.A. model.
16. A common misconception is that trade takes place between two people because:
A. they are willing to pay a higher price for a good than it is worth to the current owner.
B. they have too much of some goods.
C. they have become convinced that it is ethical to do so.
D. All the above.
E. B and C only.
17. When demand and supply both increase:
A. equilibrium quantity may or may not increase.
B. equilibrium quantity increases, and equilibrium price may or may not change.
C. equilibrium price will increase.
D. equilibrium price and quantity and will both increase.
E. none of the above.
18. Economics assumes which of the following circumstances:
A. People act in their own self-interest.
B. Individuals do not share the same information.
C. Individuals usually do not face tradeoffs.
D. All the above.
E. A and B only.
19. The new field of Behavioral Economics suggests that:
A. most individuals are rational but not always logical.
B. most individuals can be “nudged” to make better decisions.
C. individuals will always respond to incentives.
D. the conventional economic view of behavior was not based on solid conceptual theory.
E. C and D only.
20. Price floors and price ceilings imposed in markets by a government:
A. reduce the gains from trade in those markets.
B. are generally a preferred method by economists to improve market outcomes.
C. may be beneficial if the market participants are not sufficiently informed about the policy.
D. all the above.
E. none of the above.
21. According to your textbook minimum wage laws typically:
A. lead to a loss in the gains from trade for both employers and employees.
B. create problems with Assembled knowledge.
C. lead to some unemployment of employees.
D. all the above.
E. A and C only.
22. A conventional economic view about business operations for firms:
A. is that they are construed to be a “Black Box”.
B. is they are always bad for society.
C. is that they are usually unable to be “Socially Responsible”.
D. all the above.
E. none of the above.
23. When demand increases and supply decreases:
A. Equilibrium price decreases and equilibrium quantity remains constant.
B. Equilibrium price and quantity both change in the same direction.
C. Equilibrium quantity and price both remain constant.
D. Equilibrium price increases and equilibrium quantity is indeterminate.
E. none of the above.
24. The model of Organizational Architecture includes which of the following elements:
A. an economic system for allocating resources.
B. a performance reward system.
C. a management structure that is fair and balanced.
D. all the above.
E. none of the above.
25. Corporations differ from proprietorships in many respects including:
A. corporations are usually more profit oriented.
B. proprietorships typically do not have separation of ownership from control.
C. proprietorships are usually immune from microeconomic fluctuations.
D. proprietorships are more likely to have a social agenda.
E. all the above.
26. Knowledge of price elasticity of demand allows economists to determine:
A. how the economic incidence of a tax is distributed between buyers and sellers in a market.
B. whether it is appropriate to impose a new tax on sellers or buyers in a given market..
C. the legal incidence of a tax imposed in a given market.
D. all the above.
E. A and B only.
27. The price elasticity of demand for a product is likely to be greater:
A. if the product is a necessity, rather than a luxury good.
B. the greater the amount of time over which buyers adjust to a price change.
C. the smaller the proportion of one’s income spent on the product.
D. the smaller the number of substitute products available.
28. Which of the following is not a determinant of a firm’s org. architecture?
a. the business environment
b. a firm’s business strategy
c. a firm’s customer base
d. all are determinants of a firm’s O.A.
29. Which of the following is not a cost associated with contracting?
a. Residual loss
b. Bonding costs
c. Monitoring costs
d. Legal costs
e. All are costs associated with contracting
30. Organizational architecture varies from firm to firm. The three big external determinants of a firm’s administrative structure are:
a. decision rights, rewards, and technology.
b. government regulation, technology, and decision rights.
c. government regulation, technology, and markets
d. government regulation, technology, and performance rewards.
e. decision rights, rewards, and evaluation systems.
31. If a company picks an organizational architecture that is inappropriate for its marketplace, then:
a. product market competition will often punish the firm.
b. technology will usually rescue the firm from bankruptcy.
c. competition will cause the firm to grow.
d. government regulation may be required to prevent future mistakes by the management.
e. all the above.
32. The Organizational Architecture perspective on corporations suggests that:
a. they should be in a competitive product market.
b. they should be in a monopsonistic labor market.
c. their employees should always exempt from the day to day worries of making a profit.
d. decisions makers have relevant information and incentives to make good decisions.
e. all the above.
33. An implicit contract is usually
a. based on the reputations of the parties involved.
b. used by American corporations in today’s business world.
c. an approach frequently used in companies that use “best practices”
d. a good idea if the parties involved are fully competent.
e. none of the above.
34. The term “Moral Hazard” is also known as:
a. a form of disutility.
b. a post contractual information problem
c. a precontractual information problem
d. adverse selection
e. all the above
35. The process whereby corporate managers attempt to maximize and protect their own turf within the firm is called:
a. empire building
b. market share maximization
c. turf gathering
d. organized theft
e. all the above are labels for such a process
36. The fundamental problem of separation of ownership from control is:
a. assessing the firm’s strengths and weaknesses.
b. appropriately incentivizing and informing the decision-makers within the firm.
c. determining the relevant market for each product the firm produces.
d. preventing empire building within the firm.
e. b and d only
37. The separation of ownership from control within a corporation is also known as:
a. the tendency to overbuild principle.
b. the principal agent problem
c. the survival of the corporate fittest
d. the manager-rotation problem.
e. a and c only.
38. The term “Adverse Selection” Is also known as:
a. moral hazard.
b. a post contractual information problem.
c. an implicit contract.
d. a pre contractual information problem.
e. none of the above.
39. Which of the following is a manager owner conflict:
a. moral hazard.
b. choice of work effort.
c. residual loss of contracting.
d. all the above.
e. none of the above.
40. Corporate Culture includes all the following except:
a. role models.
b. language requirements for communicating with customers.
c. social rituals.
d. company slogans.
41. When changing a firm’s architecture managers should be particularly aware of:
a. when shareholders are notified of the change.
b. the company’s plans for future expansion.
c. what shareholders think of the planned change.
d. how resistant employees may be to the proposed change.
e. none of the above.
42. Benchmarking generally means a firm:
a. looks at companies that are doing something best and learning how to do also.
b. attempts to conform to government-accepted business practices.
c. will usually consider corporate culture first when crafting a new architecture.
d. all the above.
e. none of the above.
43. Economic analysis is limited in its ability to forecast precise choices of a given individual because:
a. individual preferences are largely unobservable.
b. most individuals are not always rational.
c. most individuals make decisions at the margin.
d. evidence from Behavioral economics has proved otherwise.
e. all the above.
44. When supply decreases and demand remains constant:
a. Equilibrium price falls and equilibrium quantity remains constant.
b. Equilibrium price rises, and equilibrium quantity also rises.
c. Equilibrium quantity falls and equilibrium price falls.
d. equilibrium quantity falls and equilibrium price rises.
e. none of the above.
45. The economic explanation for why trade occurs between two individuals is that:
a. people have too much of some goods.
b. in many cases one person wants to help another less fortunate individual.
c. trade makes at least one of the individuals better off.
d. all the above.
e. a person is willing to pay a higher price for a good than it is worth to its current owner.
46. Market prices for goods and services could also be thought of:
a. the accounting costs of doing business.
b. social coordinators.
c. a mechanism for determining fairness in some market arrangements.
d. all the above.
e. none of the above.
47. Coase’s Theorem suggests that when there is an externality present in a market:
a. the government can effectively intervene to resolve the conflict.
b. it cannot be resolved if the conflict is seen as a social problem.
c. buyers will be more likely to want the problem solved than sellers.
d. the parties involved can privately negotiate a solution to the externality.
e. all are part of Coase’s Theorem.
48. Which of the following is an important factor affecting the costliness of information transfer:
a. the characteristics of the sender and receiver of knowledge.
b. government policies which affect the efficiency of knowledge transfer.
c. the nature of the knowledge itself.
d. all the above.
e. a and c only.
49. Thomas Malthus’ prediction the world’ population would eventually starve to death ignored:
a. the fact that general knowledge was less expensive to transfer than previously thought.
b. the rapid and continued pace of technological advancements in agricultural production.
c. the declining pace of population growth in the world.
d. all the above.
e. none of the above.
50. Private property rights are critical for making a market economy work because they:
a. insure an equitable system of property ownership.
b. provide strong incentives for decentralized decision makers to act on their specific information.
c. reduce the costliness of specific information to society.
d. facilitate a society’s ability to efficiently allocate tax burdens to property owners.
All the above.
51. According to Coase, the optimal method of organizing a given economic transaction:
a. is allowing third parties to be involved when the negotiating costs of labor are high.
b. allows firms to minimize their tax burdens.
c. may or may not be viewed as a permanent commitment for resources.
d. is the one that minimizes contracting costs to a firm.
e. none of the above.
52. Sometimes firms can reduce contracting costs:
a. by hiring law firms whose specialty is professional lobbying.
b. through established reputations.
c. if they use tax accountants to minimize their tax burden.
d. a and c only.
e. none of the above.
53. A modern interpretation of a corporation is:
a. that a firm is essentially nothing more than a nexus of contracts with various entities.
b. that they exist primarily to promote various goals established by society.
c. based on the notion that proprietorships do not have a principal agent problem with shareholders.
d. all the above.
e. a and b only.
54. The components of organizational architecture are sometimes likened to three legs of a stool, meaning they are:
a. highly interdependent.
b. not easily changed without regard to each other.
c. function together in a synchronized fashion.
d. all the above.
e. none of the above.
55. German scientist Ringelmann used a rope attached to a meter which measured strength of effort:
a. to show that individuals will free ride on a project as more individuals are assigned to that project.
b. in demonstrating that the Law of Effort applies to all employees over time.
c. to determine how much employee effort may be required when they work alone.
d. for the purpose of raising the bar when numerous employees work on the same project.
56. In Behavioral Economics a Nudge is defined as:
a. a small push by someone to get them to do something.
b. encouragement by a highly respected individual for people do behave a certain way.
c. a suggestion given to some individuals to improve their reactions to various stimuli.
d. a change in a small feature of the environment that attracts one’s attention and alters their behavior.
e. all the above meet the technical definition of “nudge” as defined in behavioral economics.
57. Behavioral Economics suggests that incentivizing people to save more of their income:
a. entails manipulating the default options that relate to their employers’ 401k plans.
b. is simply a matter of tricking them into thinking they have more income than they really have.
c. comes down to effectively analyzing the different asset classes available to investors.
d. all the above.
e. a and b only.
58. Technological improvements in production technology for a given good will likely lead to:
a. a decrease in demand and increase in supply.
b. an increase in supply.
c. a decrease in supply.
d. an increase in quantity supplied.
e. none of the above.
59. An increase in buyers’ incomes will likely lead to:
a. an increase in the quantity demanded in the markets that most buyers participate in.
b. an increase in the demand in most markets that buyers participate in.
c. a reduction in supply in markets that buyers participate in.
d. an increase in quantity supplied in the markets that buyers participate in.
e. any of the above is possible.
60. According to Thaler, when society nudges versus shoves individuals to behave a certain way:
a. is a political judgment.
b. depends on the how many individuals are predisposed to a shove versus a nudge.
c. is irrelevant to the concerns of Behavioral Economics.
d. comes down how responsive individuals are to a given change in a situation.
e. none of the above.
61. Which demand estimation technique is most preferred by economists:
A. statistical analysis.
B. interview approach.
C. price experimentation.
D. All are about equally preferred by economists.
62. A primary problem with the interview approach for demand estimation is:
A. that respondents may not give honest answers.
B. that it measures actions but not words.
C. that it may be socially inappropriate.
D. all the above.
E. none of the above.
63. The traditional economic framework suggests that criminals:
A. are irrational.
B. do not have a social conscience.
C. weight the benefits and costs of their criminal activity.
D. usually commit crimes on impulse.
E. all the above.
64. The primary advantage of using price experimentation to measure demand for a good is:
A. that it may help a firm weed out better customers from average customers.
B. that is usually very inexpensive.
C. that it allows firms to raise prices and keep them there.
D. that it measures actions and not words of customers.
E. All the above.
65. When estimating demand firms should acknowledge that:
A. consumers are usually not rational.
B. demand for some products/services may exist only if there is a network of users.
C. the interview approach will yield the most accurate results for most products.
D. the demand for some goods is impossible to estimate.
E. All the above.
66. Because many products have various attributes that make them desirable:
A. firms would ideally estimate the demand for each attribute.
B. firms would price each attribute accordingly.
C. firms would have to use a demand estimation technique not discussed in the textbook.
D. A and B only.
E. none of the above.
67. A common problem with the statistical technique of demand estimation is:
A. multicollinearity.
B. Omission of important variables.
C. the identification problem.
D. all are problems.
E. none of the above.
68. If a tax is imposed in a market at the same time the number of buyers in the market increases:
A. equilibrium price and quantity will both be indeterminate.
B. equilibrium price will rise, and equilibrium quantity will be indeterminate.
C. equilibrium price will fall, and equilibrium quantity will increase.
D. equilibrium price and quantity will both increase.
E. Any of the above is possible.
69. Which of the following is an important factor affecting the costliness of information transfer:
a. the characteristics of the sender and receiver of knowledge.
b. government policies which affect the efficiency of knowledge transfer.
c. the nature of the knowledge itself.
d. all the above.
e. a and c only.
70. The approach used by the authors of your textbook assumes:
A. corporations are usually more profit oriented than partnerships are.
B. corporate culture is not part of the typical corporation.
C. proprietorships are usually immune from microeconomic fluctuations.
D. People act in their own self-interest and individuals do not share the same information.
E. all the above.
71. Traditional economic analysis is based on the notion that:
A. large corporations are usually very greedy.
B. individuals assign priorities to their wants and choose the most preferred options.
C. diversity is at the heart of any well managed firm.
D. most people prefer to work in a corporation versus a proprietorship.
E. none of the above.
72. A cornerstone of behavioral economics is that:
A. most persons are not always rational.
B. Marginal analysis is frequently used to make better economic decisions.
C. businesses in many cases do not attempt to maximize profit.
D. all the above.
E. none of the above.
73. Most people tend to be:
A. satisfied with a certain level of utility.
B. risk averse.
C. risk prone.
D. oriented to a particular level of work variety.
E. none of the above.
74. The interview approach to estimating demand is sometimes very inaccurate because:
A. The sample size of the respondents is too small.
B. The sample of respondents is not representative of the population.
C. The questions asked of the respondents are inappropriate and/or worded incorrectly.
D. all the above.
E. none of the above.
75. One potential advantage of firms to reduce contracting costs:
A. is that they use tax plot approaches to determining their price structures.
B. may be related to their employee fringe benefit structure.
C. is they can rely on their established reputations as an honest organization.
D. is by hiring low-cost lawyers who specialize in market trade operations.
E. all the above.
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