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Student name:__________
TRUE/FALSE – Write ‘T’ if the statement is true and ‘F’ if the statement is false.
1) In determining the compensation strategy, a major strategic decision is whether to mirror
what competitors are paying.
⊚ true
⊚ false
2) Both pay-level and pay-mix decisions focus on two objectives: (1) control costs and
increase revenues and (2) attract and retain employees.
⊚ true
⊚ false
3) A manager of a company could be a factor affecting the company’s external
competitiveness.
⊚ true
⊚ false
4) External competitiveness affects employee attitudes and work behaviors.
⊚ true
⊚ false
5) Graduating students usually find themselves in a quoted-labor market.
⊚ true
⊚ false
6) In a labor market, the demand side focuses on the actions of the employers.
⊚ true
⊚ false
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7) In a labor market, the market rate is where the lines for labor demand and labor supply
cross.
⊚ true
⊚ false
8) In both a bourse and a quoted market, employers are the buyers and the potential
employees are the sellers.
⊚ true
⊚ false
9) An employer offering lower base pay with high bonuses is a likely signal that it is
seeking risk-taking employees.
⊚ true
⊚ false
10) The most influential theory explaining pay-level differences is marginal revenue
productivity.
⊚ true
⊚ false
11) Human capital theory assumes that people are paid at the value of their marginal product.
⊚ true
⊚ false
12) Product demand and the degree of competition affect the ability of an organization to
change what it charges for its products and services.
⊚ true
⊚ false
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13) Employers tend to overestimate the importance of pay to employees and underestimate
the role of relationships with the supervisor.
⊚ true
⊚ false
14) Employers in highly competitive markets are more able to raise prices without loss of
revenues.
⊚ true
⊚ false
15) Segmenting sources of labor is a means of reducing labor costs.
⊚ true
⊚ false
16) Wages in labor-intensive industries are generally higher than in technology-intensive
industries.
⊚ true
⊚ false
17) Talented individuals have a higher marginal value in larger organizations.
⊚ true
⊚ false
18) The three factors usually used to determine the relevant labor markets are the occupation,
geography, and competitors.
⊚ true
⊚ false
19) Combat pay premiums paid to military personnel to offset some of the risk of being fired
upon is an example of a lead pay-level policy.
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⊚ true
⊚ false
20) Research shows that a lead pay strategy reduces turnover.
⊚ true
⊚ false
MULTIPLE CHOICE – Choose the one alternative that best completes the statement or
answers the question.
21) Which of the following statements is true of pay level?
A) Pay level is the same across all organizations for the same job.
B) The higher the pay level relative to what competitors pay, the lower the relative costs
to provide similar products or services.
C) Pay level is directly proportional to labor costs.
D) Pay level is independent of the number of employees in an organization.
22) ________ refers to the average of the array of rates paid by an employer.
A) Revenue margin
B) Remuneration
C) Compensation
D) Pay level
23) ________ focuses attention on the competitive positions reflected in the pay relationships
among organizations.
A) Labor demand
B) External competitiveness
C) Utility theory
D) Pay satisfaction
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24) In the context of types of markets, which of the following statements is true?
A) In both the bourse and the quoted market, employers are the sellers.
B) Ads that list a job opening’s starting wage are examples of bourse markets.
C) Graduating students usually find themselves in a bourse market.
D) Bourse markets allow haggling over terms and conditions until an agreement is
reached.
25) Which of the following is an example of a quoted-price market?
A) Streetcash, a website that allows buyers to negotiate product prices with sellers
B) Vidwom, a website that allows buyers to bid for items sold by other users
C) Gramspot, a website where cars are auctioned by sellers for charity
D) Nile, a website that allows sellers to sell their products for a fixed price
26) Which of the following is an example of a bourse market?
A) Neurofort, a website that sells surgical equipment in bulk at fixed prices
B) Hardknox, a hardware store that sells all its products at 10 percent above the
maximum retail price
C) Needlefarm, a store that sells premium furniture at discounted rates
D) Flatcake, a website that allows buyers to negotiate prices with the sellers of
handmade goods
27) ________ is an example of a bourse.
A) The stated starting wage of a job in an ad
B) The total compensation for a top athlete
C) The price of a product on Amazon
D) The price of a box of cereal at a grocery store
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28) Which of the following is an example of the demand side of labor?
A) The level of pay applicants will accept
B) The qualifications of applicants
C) The pay level offered by an employer
D) The locations of potential employees
29) Which of the following is true of the marginal revenue product model?
A) It explains differences in workers’ responses to offers.
B) It helps separate the contributions of labor from those of other resources.
C) It fails to tell managers how many people to hire.
D) It oversimplifies business conditions in the real world.
30) ________ is the additional output associated with the employment of one additional
human resource unit, with other production factors held constant.
A) Productivity
B) The marginal product of labor
C) Incremental productivity
D) The marginal revenue of labor
31) A small lawn care company has two mowers and four employees. If it hires another
employee and the factors of production remain the same, how will the productivity of the fifth
employee compare to that of the current four employees?
A) The productivity will reduce.
B) The productivity will increase.
C) The productivity will remain the same.
D) There is not enough information to determine productivity.
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32) Employers continue to hire until the marginal revenue of the last hire equals his or her
wage rate. This is based on the first labor market theory assumption that:
A) markets are competitive.
B) pay rates reflect all costs of employment.
C) employers seek to maximize profits.
D) workers are homogeneous and interchangeable.
33) In a hiring situation, considering that other potential costs will not change in the short
run, the level of demand that maximizes profits is that level at which the ________ of the last
hire is equal to the ________ for that hire.
A) demand factor; supply factor
B) marginal output; market price
C) incremental output; marginal output
D) marginal revenue; wage rate
34) Which of the following is an assumption held by the labor supply model about the
behavior of potential employees?
A) The number of job seekers is low.
B) Job seekers are unaware of job openings.
C) Job seekers do not face barriers to mobility.
D) Job seekers often lie on their résumés.
35) If Company A raises its pay rate by one dollar per hour to hire additional workers and
competitors immediately match the increase, what will be the most likely result?
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A) The labor costs for Company A will increase, but it will be unable to hire additional
workers.
B) Company A will hire the needed workers at a higher wage rate.
C) Competitors of Company A will lose employees to Company A.
D) Company A will hire higher quality workers.
36) Druk, Inc. is a consulting firm with 10 employees. Each new client generates $10,000 in
revenue. If the company hires another employee who brings in five new clients and all other
factors of production are constant, which of the following statements is true?
A) Druk will break even if it hires a 12th employee for a wage of $50,000.
B) Druk needs to pay $10,000 as wage to the 11th employee to break even.
C) Druk will break even if it hires a 13th employee for a wage of $10,000.
D) Druk needs to pay $50,000 as wage to the 11th employee to break even.
37) Which of the following labor demand theories states that work with negative
characteristics requires higher pay to attract or retain workers?
A) Job competition
B) Compensating differentials
C) Efficiency wage
D) Sorting and signaling
38) ________ theory is based on the premise that higher earnings flow to those who improve
their potential productivity by investing in themselves.
A) Human capital
B) Labor market
C) The efficiency-wage
D) The compensating differentials
39) ________ puts a lid on the maximum pay level an employer can set.
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A) Government legislation
B) The product market
C) The labor market
D) Labor market competition
40) Wages tend to be the lowest in which of the following industries?
A) Education and health care
B) Technology-intensive industries
C) Professional services
D) Pharmaceuticals
41) Which of the following is NOT true of the relationship between employer size and its
ability to pay?
A) Talented individuals have a lower marginal value in a larger organization.
B) Talented people can influence more people and decisions.
C) The influence of talented people leads to more profits.
D) Talented people prefer to work in larger organizations.
42) Evidence shows that in manufacturing, ________ is positively correlated with hourly
wage level.
A) turnover
B) productivity
C) a job description
D) total cost
43) The estimates of competitors’ pay rates will be incorrect and the pay level and pay mix
inappropriately established if:
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A) employees demand for an increase in wages.
B) the marginal revenue generated is low.
C) markets are incorrectly defined.
D) the cost for procuring labor is high.
44) In which of the following conditions would product market competitors’ data be given
more weight than data from labor market competitors?
A) Labor costs are a small share of total costs.
B) Employee skills are generic across all product markets.
C) Product demand is responsive to price changes.
D) The supply of labor is not responsive to changes in pay.
45) Which of the following is linked to high pay levels?
A) Increased absenteeism
B) Poorly performing employees
C) Reduced vacancy rates
D) Higher training time
46) The pay-level policy that is most likely to reduce pay dissatisfaction is a(n)
A) lead policy.
B) employer of choice policy.
C) lag policy.
D) match policy.
47) ________ is an external competitiveness policy that offers employees substantial options
among their pay forms.
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A) A merit bonus
B) A merit increase
C) Total compensation
D) Shared choice
48) All of the following are advantages of a lead pay-level policy EXCEPT
A) reduced vacancy rates.
B) higher turnover rates.
C) reduced absenteeism.
D) better-quality employees.
49) Among pay-mix alternatives, the percentage of base pay is highest in a
A) work/life balance policy.
B) security or commitment policy.
C) performance-driven policy.
D) market match policy.
50) The pay-mix policy alternative in which the percentage of benefits is likely to be the
highest is known as a
A) work/life balance policy.
B) security policy.
C) performance-driven policy.
D) market match policy.
SHORT ANSWER. Write the word or phrase that best completes each statement or
answers the question.
51) Explain external competitiveness.
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52) What are the factors that influence decisions on pay level and pay mix?
53) What are the basic assumptions of labor market theories?
54) What is the significance of marginal revenue?
55) According to efficiency-wage theory, how do increased wages increase efficiency and
lower labor costs?
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Answer Key
Test name: chapter 7
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