Chapter 7 Total Compensation Includes Wages And Salaries And

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Chapter 07 Test Bank KEY

1. “Total compensation” includes

2. Fringe benefits currently account for approximately what percentage of total compensation?

3. As a percentage of benefits, the largest share goes to

4. The proportion of total compensation paid out as fringe benefits tends to be larger in

5. The share of fringe benefits in total employee compensation

6. Which one of the following is not a valid explanation for why workers may prefer an extra dollar’s

worth of fringe benefits to an extra dollar’s worth of cash?

7. Because there is a _______ marginal rate of substitution of fringe benefits for wages, a worker’s wage-

fringe indifference curves are typically _______.

8. The slope of a wage-fringe indifference curve reflects

9. An individual wage-fringe isoprofit line shows

10. The slope of a wage-fringe isoprofit curve reflects

11. The firm’s wage-fringe isoprofit curve typically has a slope less than 1 (absolute value) because

12. If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages,

13. The employer’s share of the Social Security and Medicare components of the payroll tax has

increased, from 6.13% in 1980 to its current rate of 7.65%. Because employers pay no payroll tax on

many fringe benefits, this change in tax rates has effectively

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14. The trend of fringe benefits as a percentage of total compensation can be partially explained by the

fact that

15. Fringe benefits will tend to be a greater proportion of total compensation, the

16. Which of the following is not a cause of fringe benefit growth?

17. Refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to

fringe benefits.

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The shape of the indifference curves reflects

18. Refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to

fringe benefits.

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Given isoprofit line 1, this worker’s wage-fringe optimum is given by point

19. Refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to

fringe benefits.

Suppose some development rotates the isoprofit line outward, to line 2. If history is a guide, we would

expect this worker’s new wage-fringe optimum to be at point

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20. Refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to

fringe benefits.

Which one of the following events could not have caused a shift from isoprofit line 1 to line 2?

21. Refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to

fringe benefits.

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If the isoprofit line shifts from line 1 to line 2, then

22. One view of the firm is that stockholders hire managers who, in turn, hire workers. Maximum profits

are earned by satisfying the customer. The two principal-agent relationships illustrated in this view are

23. The principal-agent problem arises primarily because

24. Which one of the following best represents the principal-agent problem in the employer-employee

relationship?

25. Compensation paid in proportion to the value of sales best describes

26. Which of the following best exemplifies a piece-rate compensation scheme?

27. Royalties would most likely be received by a(n)

28. For employers, the chief advantage of royalties and commissions is that these pay policies

29. Salaried workers can be considered “quasi-fixed resources” in that

30. Raises and promotions are used by employers as a device to

31. In a work environment in which teamwork is highly valued, pay is more likely to be received as

32. A simple income-leisure model might predict that salaried workers would work fewer hours than

hourly workers. In fact the opposite seems to be true, in part because

33. The effectiveness of profit-sharing plans may be diminished because

34. Team bonuses

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35. In some instances, profit sharing may not be a very effective tool for raising worker productivity

because of the

36. The free-rider problem is most likely to arise in

37. A stock option will have value to a worker if

38. Tournament pay

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Topic: Pay for Performance

39. Raises and promotions may be viewed as a form of

40. Compared to their counterparts in other developed countries, CEOs in the United States are paid

41. A firm might choose to pay its employees a wage higher than that which would clear the market

because

42. Suppose a “fully effective” worker can produce 20 units per hour in a particular firm. The firm’s

wage-productivity relationship is given by the table below.

If the actual wage is $7, the wage cost per effective unit of labor is

43. Suppose a “fully effective” worker can produce 20 units per hour in a particular firm. The firm’s

wage-productivity relationship is given by the table below.

This firm’s efficiency wage rate is

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

45. One implication of efficiency wage models is that

46. Which one of the following is not typically offered as an explanation for efficiency wages?

47. Efficiency wage models are often criticized because

48. Labor market efficiency requires that each worker be allocated to

49. In 1914 Ford Motor Company doubled the wage it paid its employees, resulting in

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Chapter 07 Test Bank Summary