Why do many firms base incentive pay on group performance?
What will be an ideal response?
There are several advantages for setting up group incentive plans. Group performance is easier and cheaper to measure than individual performance. Group pay encourages team work and mutual cooperation based on team members self-selecting into tasks based on their skills. Group work also limits free-riding since each person can monitor others. Group work also retains employees, and gives them confidence about tenure. Group performance also reduces contracting costs since groups' compensation can be adjusted based on opportunity costs.
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Markets allocate resources efficiently when Adam Smith's "invisible hand" is allowed to work freely. Which of the following statements is true?
a. Unrestrained, competitive markets can accomplish optimal resource allocation through the invisible hand - the competitive price system. b. Mandatory controls that lower prices below equilibrium improve economic welfare by making the product cheaper and promote the efficient use of resources. c. The "visible hand" of government planners provides transparency to markets and thus improves outcomes. d. Increased competition from medical travel, domestic or international, does harm to patients who do not have the ability to travel for care. e. Government regulation is essential for market outcomes to maximize consumer welfare.
External costs are
A. Outside costs that producers absorb. B. Domestic economic impacts of foreign events. C. Effects of government on the private sector. D. The difference between social and private costs of a market activity.
Which is not characteristic of a centrally planned economy?
a. The central government owns all land and capital. b. The central government makes all economic decisions. c. Each collective or factory sets its own goals. e. Each person is assigned a job.
When the expected rate of inflation is added to the real interest rate, the result is called the:
A. preferred rate. B. nominal interest rate. C. adjustment rate. D. differential rate.