TEST BANK
TEST BANK
,Chapter 01 Introduction: What This Books is About
1. The reduction of problems to a bad decision and then figuring out who made the decision and why they made the
decision are two steps in
a. problem solving.
b. performing marginal cost-benefit analysis.
c. calculating the profits of an auction house.
d. interviewing for a job.
ANSWER: a
2. Problem solving is
a. firing whomever is responsible for mistakes.
b. performing marginal cost-benefit analysis.
c. calculating the profits of an auction house.
d. the reduction of problems to a bad decision and then figuring out who made the decision and why they made
the decision.
ANSWER: d
3. A model of how humans behave, particularly "the rational actor" paradigm, is a necessary assumption for
a. computerization of data within a business organization.
b. the problem-solving algorithm.
c. not assuming people are inherently good.
d. assuming that humans are inherently altruistic.
ANSWER: b
4. To follow the problem-solving algorithm, which one of the following is required?
a. Computerization of data within a business organization.
b. A model of how humans behave, particularly "the rational actor" paradigm.
c. Not restricting human action to a set of tractable rules.
d. Assuming that humans are inherently altruistic.
ANSWER: b
5. The rational actor paradigm is characterized by all of the following except:
a. The assumption people act rationally.
b. The assumption people act optimally.
c. The assumption people act in their self-interest.
d. The assumption people act in a group's best interest.
ANSWER: d
6. Which of the following questions is not used to diagnose the source of a problem in the problem-solving algorithm?
a. Who is making the bad decision?
b. Does the development agent have enough information to make a good decision?
c. Does the development agent have the incentive to make a good decision?
d. Why does the development agent have any incentives outside the interests of the firm?
ANSWER: d
,7. When an employee has enough information to make good decisions, and the incentive to do so, we say
a. that the employee's incentives are orthogonal to the goals of the organization.
b. that the employee's incentives need to be removed in order to better help the organization.
c. that the employee's incentives are aligned with the goals of the organization.
d. that the employee's incentives are unnecessary and only come at a cost to the firm.
ANSWER: c
8. Suppose an auction house has experts that are empowered to negotiate commission rates with owners of art. Rates can
be anywhere from 10% to 30%. Auction house management soon discovers that almost all negotiated commissions are
either at 10% or very close to it. Use the problem-solving algorithm to select a likely explanation below.
a. The art experts negotiate low commission rates in exchange for in-kind gifts from art owners.
b. The art experts are not capable of adequately identifying art that would sell for enough money at auction to
warrant higher commission rates; it is a lack of information.
c. The art experts find their flat salary adequate and are happy to help their employer maximize profit.
d. The art experts are adversarial with art owners and know that paying low commissions in the high-end art
world is akin to admitting relative poverty to other art owners.
ANSWER: a
9. Suppose a car dealership hires dealers to sell their cars. The dealers can negotiate the sales prices of cars within certain
ranges above the manufacturer's suggested retail price (MSRP), between 2% and 10% higher. In addition, the dealers are
given 5% of the total value of the car sold. The owners of the dealership, however, soon discover that almost all dealers
are selling cars for only a 2% markup over MSRP. Use the problem-solving algorithm to select a likely explanation
below.
a. Dealers do not have enough information about which cars are likely to sell for higher markups over MSRP.
b. Dealers are incapable of negotiating for higher markups due to lack of persuasive ability.
c. Dealers are not to blame. Dealership management should never give them the power to negotiate sales price.
d. Dealers get paid based off the price of the car sold and benefit more from selling more cars at a 2% markup
versus fewer cars at a 10% markup.
ANSWER: d
10. In economics, changing incentives changes
a. the technical costs associated with production within a firm.
b. the productive capacity of the physical capital within a firm.
c. the behavior of people within a firm.
d. the entire industry that a firm is within.
ANSWER: c
11. Recognizing that individuals tend toward self-interest is equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: False
12. Recognizing that individuals tend toward self-interest is not equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: True
13. The rational actor paradigm is much more than a tool for analyzing behavior; indeed, it is a good way to live your life.
, a. True
b. False
ANSWER: False
14. The rational actor paradigm is a tool for analyzing behavior and a good way to live your life.
a. True
b. False
ANSWER: False
15. Recognizing that individuals tend toward self-interest is not equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: True
16. Recognizing that individuals tend toward self-interest is equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: False
17. The rational actor paradigm is all of the following except:
a. a tool for analyzing behavior.
b. a framework that models humans as tending toward rational self-interest.
c. advice for people on how to live life.
d. a framework that models humans as acting optimally as determined by the actors themselves.
ANSWER: c
18. Judging outcomes as good or moral due to the outcomes that result from actions is a _______ approach to morality.
Judging outcomes according to their correspondence (or lack thereof) to some outside set of principles or standards is
known as _______.
a. consequentialist; deontology
b. deontologist; consequentialism
c. consequentialist; consequentialism
d. deontologist; deontology
ANSWER: a
19. Arguing that governments ought to regulate monopolies because they charge prices that are too high is _______
argument.
a. a consequentialist
b. a deontological
c. neither deontological nor a consequentialist
d. both a deontological and a consequentialist
ANSWER: a
TEST BANK
,Chapter 01 Introduction: What This Books is About
1. The reduction of problems to a bad decision and then figuring out who made the decision and why they made the
decision are two steps in
a. problem solving.
b. performing marginal cost-benefit analysis.
c. calculating the profits of an auction house.
d. interviewing for a job.
ANSWER: a
2. Problem solving is
a. firing whomever is responsible for mistakes.
b. performing marginal cost-benefit analysis.
c. calculating the profits of an auction house.
d. the reduction of problems to a bad decision and then figuring out who made the decision and why they made
the decision.
ANSWER: d
3. A model of how humans behave, particularly "the rational actor" paradigm, is a necessary assumption for
a. computerization of data within a business organization.
b. the problem-solving algorithm.
c. not assuming people are inherently good.
d. assuming that humans are inherently altruistic.
ANSWER: b
4. To follow the problem-solving algorithm, which one of the following is required?
a. Computerization of data within a business organization.
b. A model of how humans behave, particularly "the rational actor" paradigm.
c. Not restricting human action to a set of tractable rules.
d. Assuming that humans are inherently altruistic.
ANSWER: b
5. The rational actor paradigm is characterized by all of the following except:
a. The assumption people act rationally.
b. The assumption people act optimally.
c. The assumption people act in their self-interest.
d. The assumption people act in a group's best interest.
ANSWER: d
6. Which of the following questions is not used to diagnose the source of a problem in the problem-solving algorithm?
a. Who is making the bad decision?
b. Does the development agent have enough information to make a good decision?
c. Does the development agent have the incentive to make a good decision?
d. Why does the development agent have any incentives outside the interests of the firm?
ANSWER: d
,7. When an employee has enough information to make good decisions, and the incentive to do so, we say
a. that the employee's incentives are orthogonal to the goals of the organization.
b. that the employee's incentives need to be removed in order to better help the organization.
c. that the employee's incentives are aligned with the goals of the organization.
d. that the employee's incentives are unnecessary and only come at a cost to the firm.
ANSWER: c
8. Suppose an auction house has experts that are empowered to negotiate commission rates with owners of art. Rates can
be anywhere from 10% to 30%. Auction house management soon discovers that almost all negotiated commissions are
either at 10% or very close to it. Use the problem-solving algorithm to select a likely explanation below.
a. The art experts negotiate low commission rates in exchange for in-kind gifts from art owners.
b. The art experts are not capable of adequately identifying art that would sell for enough money at auction to
warrant higher commission rates; it is a lack of information.
c. The art experts find their flat salary adequate and are happy to help their employer maximize profit.
d. The art experts are adversarial with art owners and know that paying low commissions in the high-end art
world is akin to admitting relative poverty to other art owners.
ANSWER: a
9. Suppose a car dealership hires dealers to sell their cars. The dealers can negotiate the sales prices of cars within certain
ranges above the manufacturer's suggested retail price (MSRP), between 2% and 10% higher. In addition, the dealers are
given 5% of the total value of the car sold. The owners of the dealership, however, soon discover that almost all dealers
are selling cars for only a 2% markup over MSRP. Use the problem-solving algorithm to select a likely explanation
below.
a. Dealers do not have enough information about which cars are likely to sell for higher markups over MSRP.
b. Dealers are incapable of negotiating for higher markups due to lack of persuasive ability.
c. Dealers are not to blame. Dealership management should never give them the power to negotiate sales price.
d. Dealers get paid based off the price of the car sold and benefit more from selling more cars at a 2% markup
versus fewer cars at a 10% markup.
ANSWER: d
10. In economics, changing incentives changes
a. the technical costs associated with production within a firm.
b. the productive capacity of the physical capital within a firm.
c. the behavior of people within a firm.
d. the entire industry that a firm is within.
ANSWER: c
11. Recognizing that individuals tend toward self-interest is equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: False
12. Recognizing that individuals tend toward self-interest is not equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: True
13. The rational actor paradigm is much more than a tool for analyzing behavior; indeed, it is a good way to live your life.
, a. True
b. False
ANSWER: False
14. The rational actor paradigm is a tool for analyzing behavior and a good way to live your life.
a. True
b. False
ANSWER: False
15. Recognizing that individuals tend toward self-interest is not equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: True
16. Recognizing that individuals tend toward self-interest is equivalent to encouraging selfish behavior.
a. True
b. False
ANSWER: False
17. The rational actor paradigm is all of the following except:
a. a tool for analyzing behavior.
b. a framework that models humans as tending toward rational self-interest.
c. advice for people on how to live life.
d. a framework that models humans as acting optimally as determined by the actors themselves.
ANSWER: c
18. Judging outcomes as good or moral due to the outcomes that result from actions is a _______ approach to morality.
Judging outcomes according to their correspondence (or lack thereof) to some outside set of principles or standards is
known as _______.
a. consequentialist; deontology
b. deontologist; consequentialism
c. consequentialist; consequentialism
d. deontologist; deontology
ANSWER: a
19. Arguing that governments ought to regulate monopolies because they charge prices that are too high is _______
argument.
a. a consequentialist
b. a deontological
c. neither deontological nor a consequentialist
d. both a deontological and a consequentialist
ANSWER: a
