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Leadership

Leadership is an important aspect in the society today. A leader is someone who influences a group of people so as to achieve a particular objective. Leaders are tasked with a lot of things to do so many objectives are determined by leaders. There are many expectations that are required from leader; a leader is expected to have full influence on his or her subjects. The leader should be capable of giving orders to the subjects so as certain goals can be achieved (Bolden 2011). A leader is expected to lead other people with example, the leader is supposed to carry himself with great discipline and good behavior so as to earn the much needed respect from the junior stuffs. A leader is also expected to be a person of integrity, this shows the leader`s inner values through actions that are being demonstrated.

A servant leader is a leader who is seen not to be above those being lead (Greenleaf 1976). A servant leader sees the opportunity of teaching others so as to achieve certain goals. A servant leader will interact freely among the peers but does not consider being superior among the followers. Jesus is considered to be a role model for Christians because of the servant leadership attributes that He had. Jesus was a servant leader as shown in the bible; He was able to wash the feet of his followers (John 13:1-17). This practice portrayed Him as someone with humility and care. Jesus came to serve others as He used to heal the sick, drove demons out of people and was referred as a Teacher by many(Mark 7:31-37).

My leadership skills are goal oriented and my main focus is to see the objectives that have been drafted are achieved. A leader has to be motivational to the peers. For effective work to be done, the junior stuffs have to be motivated so that they can enjoy their jobs. Just because I am leader does not mean I have full authority of others, courtesy must prevail in my dealings with the stuff if work is to be completely done well. As a leader I also have good communication skills, this enables me to give instructions in a well-informed manner. Good communication skills ensure that there is no misunderstanding between the leader and the juniors regarding instructions that needs to be done in particular jobs (Bateman 2013).

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Shared leadership is an important aspect especially when some work to be done are very challenging and need various leaders with different skills in order to carry out the task (Bolden 2011). The other opportunity where shared leadership can be demonstrated when there is a problem in an organization and I am not able to solve it. Other leaders can come in and help out in solving the problem in the organization. Lateral leadership is well practiced when various teams have met to work on one common goal. This brings unity among the workers as there is minimal supervision so decisions are entirely based on the workers.

References

Bateman, T. S., & Snell, S. A. (2013). Management: Leading and collaborating in a competitive world (10th ed.). New York, NY: McGraw-Hill.

Bolden, R. (2011). Distributed leadership in organizations: A review of theory and research. International Journal of Management Reviews, 13, 3, 251-269.

Greenleaf, R. K. (1976). Servant leadership: A journey into the nature of legitimate power and greatness. New York, NY: Paulist Press.

The Holy Bible King James Version: 1611 Edition. Hendrickson Publishers.

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The term persuasion is used broadly to refer to any procedure that has the potential of changing a person’s mind (Cialdini, 2006). Although this concept can be used to change many things, for example, a person’s belief, the primary use of this concept in the psychological literature is the attitude of a person. Attitude is a term that is used to refer to the general evaluations that individuals have with regards to objects, people and even places (Hogan, 1996). Persuasion is studied as the primary object of influence. This is because of its presumed influence on both choice and action. In this paper, we will explain the concept of persuasion in influencing the opinions of other people and in triggering the attitudinal and behavioral change. Real examples of persuasion will be given in an attempt to support our reasoning.

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The scholarly speculation about persuasion has a very long history; it has gone through a number of distinct eras (friedkin, 1981). The early approaches were efforts to answer a variety of questions, for example, is it better to presents people with arguments which are logic or with appeals based on emotions? The modern day approach towards persuasion was initiated in the 1900s (Cialdini, 2006). The learning theory principle is one of the earliest and most influential theories of persuasion. The learning theory contends that, anything that facilitates attention, comprehension and learning the contents of any persuasive message, is good for attitude change, and that, anything that disrupts this learning is bad (Batko, 2010). For example, it was perceived that distracting someone from the message reduced persuasion was bad; this is because it interfered with the learning of the message.

 

Persuasion involves a deliberate attempt to influence another person. In most cases, the persuader must try to change another person’s attitude or behavior. The persuader must be aware that he or she is achieving this goal. Persuasion represents a conscious attempt to influence the other party. Persuasion comes with an accompanying awareness that the persuaded party has a mental state that is susceptible to change. In the above context, persuasion is perceived as a type of social influence (Batko, 2010). Social influence is the broad process in which the behavior of one person alters the thoughts or the actions of another person (Boundless, n.d.). It is possible for social influence to occur, when the receivers act on cues or messages that were not necessarily intended for consumption (Cialdini, 2006). In most cases, persuasion occurs within the context of intentional messages, which are initiated by the communicator in the hopes of influencing the recipient (Batko, 2010). This is perceived as a pretty heady stuff, but it is important because it includes possible influence attempts under the persuasion heading (Latane, 1981).

 

How we influence people to accept our opinions depends largely on the persuasion methods that we use. There are numerous persuasion strategies. For example, in usage of force, a person can make another person to change his behavior or accept opinion by demanding (Cialdini, 2006). This strategy has no scientific basis as it is perceived as a threat, since the recipient is not given options. The principle of reciprocity states that, when people give us things, we tend to repay them back, for example when a person is good to us and assist us through a problem, we are obligated to do the same to them (Boundless, n.d.). Reciprocity therefore becomes a powerful tool of persuasion and can help change our attitudes towards a subject. Generally, many people adapt a bad attitude towards people who cannot return a favor, when offered a gift. The societal standard therefore makes reciprocity a very powerful persuasive technique that can result in unequal exchanges hence influence a person’s attitude and behavior change. The power of the crowd is an effective persuasion strategy; people tend to do what others around them do. In trying to be like others, people are likely to change their behaviors’ and attitudes (Boundless, n.d.)

A practical example of persuasion can be found in the advertisements. In our everyday world, we become bombarded with advertisements of every sort. The goal of these advertisements is to influence us buy things like cars, computers video games and even vote for particular candidates (Cialdini, 2006). The ads appear on billboards, websites and TVs. In the recent past, there has been substantial evidence that, advertising is immensely effective when it comes to changing attitudes. Most advertisements use persuasion to encourage people to donate to the charitable causes or engage in healthy behavior (Latane, 1996).

The first aspect of becoming an effective persuader is to get people’s attention, after which an effective message is sent (Latane, 1981). To change the attitudes and the behavior of the person being persuaded, the persuader must ensure that, the person being persuaded process the message in a way that he/she would like them to. In a practical example, many advertisements campaigns pay attention to the cognitive, affective and behavior aspects of their methods. They try to understand how the communication they present relates to the message recipients, their motivations, desires and goals. For example, many coca-cola adverts persuade their customers to consume their products by making them feel good about themselves; they make their messages effective by using more effective means of communication.

It is true that, communicators are more effective in persuading others to change their behaviors and attitudes when they make the recipients feel good about themselves (Cialdini, 2006). In the case of the Coca-Cola Company, the advertisements create a positive association with the product that they are trying to sell and put people in a good mood which makes them accept what they offer. In this case, the recipient’s behavior and attitude towards the product is changed (Batko, 2010). Marketers, who include such things for example gifts in their offers, are likely to get a higher response than those who don’t.

The best theory to explain how persuasion influences other people attitude and behavior is the elaboration likelihood model theory (ELM). The elaboration likelihood model of persuasion is a theory about the thinking process that occurs when we begin to change a person attitude and behavior by using communication (Latane, 1996). The different effects that are played within the processes of persuasion, and the judgments, are elaborations of how this theory is used to influence the attitudes and the behaviors in a number of different ways (Hogan, 1996). Unlike the earlier models of persuasion, the ELM contends that, any one variable can influence attitudes and behavior in a number of ways (Latane, 1996). The variable can serve to either increase or decrease persuasion through different mechanism.

At its primary core, the theory suggests that, individuals in situations can differ in how careful and extensive they think about a message and the position or behavior it advocates for. That is, in any given context, the amount of elaboration or thinking that a person does about a certain message or issue varies from being low to being high in the elaboration continuum (Cialdini, 2006). Individuals can think a lot or little about a message, and the amount of thinking that people engage in. This process of thinking explains how people are persuaded to change their attitudes and behaviors’.

The position that the people fall on this continuum, is largely determined by the motivation and the ability to process the message presented to them. An individual motivation can be influenced by different variables for example the perceived personal relevance of the issue at hand, the general enjoyment of thinking (In some cases, some people like thinking more than others) and being responsible for the information processing. For example, if an individual has a family history of cancer, the individual might be immensely motivated to look for more information concerning new cancer screening technologies. Ability is used to refer to the individual needing the resources and skills to understand and attend to a particular message. Several factors are influential in this , they include intelligence and time available to engage in the message and the persons level of the actual or the perceived knowledge (Hogan, 1996).

Some of the factors that influence a recipient’s motivation and ability may be very specific to the communication context that is internal to the person. When motivation and ability are high, individuals get inclined to go down a central route to persuasion (Cialdini, 2006). When motivation is low and the ability to process is hindered individuals are likely to go down a peripheral route to persuasion (Hogan, 1996).

When people get motivated and think carefully about a message, they are likely to follow the central route to persuasion. In the central route, the individuals are able to consider the element route of the message in order to determine on whether its proposal makes sense (Latane, 1981). By having a specific focus on this subject, the central route to persuasion involves a focus on the strength of the message argument, these are the pieces of information on that message intended to be a source of evidence for the communicator’s point of view (friedkin, 1981).

If the arguments become strong, the engaged individuals generate a predominantly favorable thought in response to the messages, they experience attitude change in the advocated direction (Latane, 1996). If the message contains weak arguments, the thoughtful receivers may generate more unfavorable than favorable thoughts in responding to the message, at this point, there is no behavior or attitude change (Batko, 2010). The argument strength or weakness can be considered as an empirical question which can be explored through testing different message content.

Thinking a great deal about a particular message, is not a guarantee that the recipient will process the argument in an objective manner and therefore, change their attitude or behavior (Cialdini, 2006). The interpretation of the message can be biased by various factors. For example, many people consider the arguments that are consistent with the pre-existing arguments to be stronger than the arguments that oppose the pre-existing attitudes (Latane, 1996). Emotions can bias the recipient evaluation of the persuasive arguments. The high elaboration participants evaluate the persuasive arguments more favorably when they are in a happy rather than a neutral state. The above findings have shown that, persuasion by the central route does not involve the impartial consideration of a message argument.

In our day to day lives, we lack the motivation or the ability to carefully consider persuasive communication in the way characterized by the central route. Attitude and behavior change, can occur nonetheless since some persuasion processes require little consideration of the argument that is contained in a message (Hogan, 1996). In the ELM, the processes become organized under the peripheral route to persuasion; they involve the mechanism where the message recipients use simple cues or environmental shortcuts as a means of processing the information that is found in a message. For example, cues that involve the emotional states (e.g. sadness).

Other common shortcuts that, people take, include keeping a record of argumentswhich are present in a particular message or looking at the response given by people who are exposed to the same measure as a clue to how people respond (Cialdini, 2006). Under the peripheral route the strength of the message arguments is of little consequence to forming or changing the attitudes of a particular person. Despite the fact that the shortcuts do not involve thoughtful consideration of the content of any message, the peripheral route is immensely effective in leading to the persuasive impacts on both attitude and behavior in the short term party (Batko, 2010).

The elaboration routes which are used in forming or changing a person attitude have several ramifications. The attitudes that are shaped by the central route have different consequences and properties compared to those that are shaped by the peripheral routes. In general, attitudes that result from the peripheral routes are more stable overtime and they are resistant to the counter arguments. They are likely to influence the thinking process in a pro-attitudinal way, of greatest importance is the fact that, they lead to a more attitude consistent behavior. Considering all this aspects together, the enduring and durable outcomes are considered to represent the features of a strong attitude (Batko, 2010). As a result, the attitudes that are produced through the central route increases the changes associated with eliciting sustained behavior change (Latane, 1981).

The central routes process has presented numerous benefits of shaping attitudes; however they are very difficult to achieve considering the high elaboration demands that is placed on the target audience (Cialdini, 2006). As such, there is a temptation to focus on producing attitudes through the less demanding peripheral. Such attitudes are, however, described as the winning in name, but are not seen to have gained anything by winning. The peripheral approaches are quite powerful in the short-term, this is especially when an immediate change in behavior is required, and the main challenge however is that overtime the emotions dissipate. These factors can undermine the attitudes which are shaped by the peripheral route.

The attitudes that are changed through the central route tend to be more based on the active thought process; they result in a stable and strong cognitive foundation (Cialdini, 2006). The attitudes that are created by a more peripheral route have a more passive acceptance or rejection of the simple cues, for example when two people posses a similar positive attitude towards an object or behavior, the attitudes might turn out to be different in terms of the underlying psychological behaviors’ (Latane, 1996). The attitude can be different in terms of the underlying psychological factors, which can lead to the formation and the consequences that they lead to.

Any message variable influences the concept, of persuasion in various ways. To this end, similar factors may be influential under both the peripheral and the central route elaboration conditions (Cialdini, 2006). Variables can influence persuasion when they serve as arguments, operate simple cues and impact the amount of elaboration that a message receives.

Under the low elaboration conditions, the persuasion variables are likely to function as simple cues rather than strong arguments (Latane, 1996). Many people are unlikely to scrutinize the message that is relevant for its merit which is related to the advocated position or even behavior (Latane, 1981). The evaluation that is formed, results to simple associations or interference of which do not require thought full efforts, for example, individuals mood , can serve as simple cues because the mood is associated with a message advocated position.

In conclusion, the amount of nature and thinking, which a person does about a message, affect the kind of persuasion that the message produces.

In conclusion, aspects of persuasion situations are important in changing a person’s attitude and behavior change (Cialdini, 2006). The most important aspects which are involved in persuasion include recipient, channel and context. The most important factor is the degree in which the recipient views the message, hence persuading them to make various types of choices. Different attitudes are shaped by associating the pleasurable environments with different products, people or even ideas, many persuasive communications are not designed for the purpose of converting people but to reinforce a position that they already have. Persuasion communication has the ability to influence and change a person’s attitudes and behaviors’.

 

 

 

 

 

 

Bibliography

Batko, A., 2010. The Art of Persuasion: The Language of Influence and Manipulation. New York: Kindle publishers.

Boundless, n.d. Each individual is persuaded by different things over different time-periods, so to be effective each pitch must be customized.. [Online]
Available at: https://www.boundless.com/communications/persuasive-speaking/introduction-to-persuasive-speaking/the-psychology-of-persuasion/

Cialdini, R., 2006. Influence the psychology of persuasion. New york: Collins publishers.

friedkin, N., 1981. Astructural theory of social influence. Cambridge: Cambridge University Press.

Hogan, K., 1996. The Psychology of Persuasion: How To Persuade Others To Your Way Of Thinking. New York: Pelican publishers.

Latane, B., 1981. The psychology of social impact. American Psychologist, Volume 36, p. 343.

Latane, B., 1996. Dynamic social impact:The creation of culture by communication. Journal of comunication, 13(3), pp. 13-24.

 

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Project transition Plan

According to the requirement of the project specification, the software to be made will store the performance schedule related to his/her working location. The system to be developed will allow a large company to coordinate and maintain records of the professional development of its employees. The company has over 30,000 employees who are located in four sites: Florida, Colorado, Illinois, and Texas. The system needs to allow employees to locate and schedule professional development activities that are

Relevant to their positions. Sophisticated search capabilities are required, and the ability to add scheduled events to the employees’ calendars is desired. The

System needs to support social networking to allow employees to determine who is attending conferences and events. This will promote fostering relationships and ensure coverage of conferences that are considered of high importance.

Once an activity has been completed, employees will use the system to submit the documentation. The system should support notifications to management

Personnel whenever their direct reports have submitted documentation. The system should also notify employees if their deadline to complete professional

Development requirements is approaching and is not yet satisfied. The goal is to get this system up and running at the start of the next fiscal year.

 

When a project is ready to be deployed, a transition plan can help the transfer of ownership from the project team to the customer or organization that

Requested the project.

The transition Plan

 

Every project has two cycles of development. Once the research and development cycle is finished the project is handed over to the support team for further modifications and support for a few months/ year. As the project goes up and running there are some risks still present which could affect the project.

These are:

  • Project environment change
  • Some loop holes in the project which are to be tested thoroughly
  • The test results are to be checked and modifications to be done
  • A demo of project should be shown to the client to get it approved
  • Post production, a training to be delivered to the client/ client support team on the application.

The scope of the project is:

  • ü Create the project on company’s development/ own server and share it with the employees.
  • ü Create a database and use it inside the coding of the project to keep data for following fields: employee name, employee designation, employee city, employee event list, employee work status, employee event completion document.
  • ü These fields will keep the following types of data: TEXT, TEXT, TEXT, TEXT, DATE-TIME STAMP, BOOLIAN (DONE, NOT DONE), and FILE.
  • ü The database used for the project will store all of these data.
  • ü There should be a decent searching method given where we can search according to employee name or employee city or employee designation.
  • ü The employees will be assigned to tasks or events according to their designation or post along with their working city.
  • ü After finishing the event the employee has to submit a documentation about the event he/she attended
  • ü If the documentation is not delivered on time , the timesheet will appear as red or not done or in delay.
  • ü The database will have the capacity to store details of 30,000 employees.

ü The system should support notifications to management personnel

  • ü The system should get a mailing server which can through emails
  • ü The system should be managed globally as the employees are not from a single city

 

The development:

Every development follows some basic steps, which helps to get a better result in a short time. First the conceptualization of the project has to be clear. Then the development process begins. After development execution is held. Along with that comes completion and monitoring which is a closed circle of events.

Figure:1

After completion of the project, project handover process is executed.

The project handover process follows these basic steps:

When the project handover is planned, many times it is required to go for further development as many changes are required after that.

Figure:2

The re-planning of project includes further issue recognizing, the documentation for entire plan change, observing the process and plan the consequences to get for the changes. And the reflect those changes on the project and see the result and analysis to be done on them entirely.

The transition plan should include:

  1. Transition from I.T. project team to support team:

(a) Transition dates

(b) If there will be extended support by the I.T. project team

(c) Training plans

(d) Plans for establishing appropriate system access for the support team

  1. Identification of ownership
  2. End-user training plans
  3. Contact information for system support
  4. Details of what was implemented
  5. Details of outstanding tasks and issues to be addressed as support
  6. Any ongoing/future risks, scalability concerns, and system limitations

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After the development part is over the project is handed over to the support team. For this purpose there should be a deadline maintained for both the parties: the developers and the clients.

The support team should be assigned for a particular time period to give the support, in between that time span the testing team should complete their system testing and order for further changes. Any changes made after the support deadline should be considered as new project.

Training plans to be organized by the authority or managers depending on the complexity of the project. The support team should be given proper environment and systems to carry out the support.

End user training plan includes giving the training to the client, in this case employers and fellow employees. And make them understand the flow of project. A detail of what was implemented is to be delivered to the employers. It should also mention if there are any future risks or task hidden inside the project .as that can harm the entire system.

This project will help the company or the organization to keep track of their employees and the employees will also be benefitted because the event listing will be exposed to them ahead of time, so they can plan their work as they want.

References

§         Essentials of Transition Planning by Paul Wehman Ph.D

  • PMBOK, 2000 Edition
  • Harold Kerzner (2003). Project Management: A Systems Approach to Planning, Scheduling, and Controlling (8th Ed. ed.). Wiley. ISBN0-471-22577-0.
  • Richard H. Thayer, Edward Yourdon (2000). Software Engineering Project Management (2nd Ed. ed.). Wiley-IEEE Computer Society Press. ISBN0-8186-8000-8.
  • Fleming, Quentin (2005). Earned Value Project Management (Third Edition ed.). Project Management Institute. ISBN1-930699-89-1.
  • Filicetti, John, Project Planning Overview, PM Hut (Last accessed 8 November 2009).

Figure Captions

Figure 1. Stages of development

Figure 2. Phases of re-planning

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Multiple choice.

For each multiple choice question, select the best answer and provide a brief explanation of why your answer is the best response. Each multiple choice question is worth 4 points (2 for the correct answer and 2 for the explanation). No graphs are required for full credit on this section, but a graph may help you formulate your explanation. Show calculations where applicable.

1) Suppose that the competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be:

A) to decrease the price of rice to the Japanese people.

  1. B) to decrease the consumer surplus of Japanese rice consumers.
  2. C) to decrease the producer surplus of Japanese rice producers.
  3. D) a welfare gain for the Japanese people.

Answer: B

If a competitive market becomes suddenly a monopoly market it would reduce output to increase the price where MC = MR (marginal costs = marginal revenue) Then this would lead to a decrease in consumer surplus as the prices of rice would be higher for everyone and the producer surplus would be increased because there would have more profit on every unit. The answer is B.

2) Which of the following is true for both perfect and monopolistic competition?

  1. A) Firms produce a differentiated product.
  2. B) Firms face a downward sloping demand curve.
  3. C) Firms produce a homogeneous product.
  4. D) There is freedom of entry and exit in the long run.

Answer: D

In order to survive in any market structure a firm has to make at least normal profits in the long run (= zero economic profits) : the freedom of entry and exit in the long run ensures normal profits earnings in the long run. The answer is D.

3) The authors explain that the international copper cartel (CIPEC) has been largely ineffective in raising the price of copper in world markets, and the reason is mainly due to the relatively elastic demand for copper. Suppose the cartel recognized that there are multiple uses for copper, and some of the uses have few substitute products (e.g., copper electrical wire) while others have several close substitutes (e.g., copper water pipes). If cartel attempted to raise the price of copper in one of these sub-markets, which market should the cartel choose?

  1. A) Market with several close substitutes because demand is more elastic.
  2. B) Market with several close substitutes because demand is more inelastic.
  3. C) Market with few close substitutes because demand is more elastic.
  4. D) Market with few close substitutes because demand is more inelastic.

Answer: D

The more that close substitutes are available, the higher the elasticity is likely to be : if the market has few close substitutes the demand is more inelastic (= less elastic) and in an inelastic market a change in price would not significantly affect the demand, which is more interesting for the cartel to select the most inelastic market to increase the prices. The answer is D.

4) Engineers at Jalopy Automotive have discovered a safety flaw in their new model car. It would cost $500 per car to fix the flaw, and 10,000 cars have been sold. The company works out the following possible scenarios for what might happen if the car is not fixed, and assigns probabilities to those events:

Scenario                                                           Probability                    Cost

  1. No one discovers flaw             0.15                             $0
  2. Government fines firm             0.40                             $10 million

(no lawsuits)

III. Resulting lawsuits are lost                                     0.30                 $12 million

(no government fine)

  1. Resulting lawsuits are won 0.15                             $2 million

(no government fine)

 

Which of the following statements is true?

  1. A) The expected cost of not fixing the car is less than the cost of fixing it.
  2. B) The expected cost of not fixing the car is greater than the cost of fixing it.
  3. C) It is not possible to tell whether the expected cost of fixing the car is less than the cost of fixing it, because the probabilities are subjective.
  4. D) It is not possible to tell whether the expected cost of fixing the car is less than the cost of fixing it, because the probabilities are not equal.

Answer: B

The expected cost is determined by the costs times their respective probabilities : 0.15*$0 + 0.40*$10+0.30*$12+0.15*$2 = $7.90 million and this is for 10,000 cars : the expected cost per car is $7.90 million/10000 = $790, which is greater than the cost of fixing it ($500). The answer is B.

5) A firm should hire more labor when the marginal revenue product of labor

  1. A) equals the wage rate.
  2. B) exceeds the wage rate.
  3. C) is less than the wage rate.
  4. D) Any of these can be true.

Answer: B

A profit maximizing firm would hire more workers till their marginal revenue product equals the wage rate because it is not efficient to pay the workers more than their earnings from their labor. Therefore their earning, then the marginal revenue product of labor, has to be greater than the wage rate to be able to hire more employees : the answer is B.

6) The industry demand curve for labor is the

  1. A) horizontal sum of individual firm labor demand curves.
  2. B) vertical sum of individual firm demand curves.
  3. C) representative firmʹs demand curve multiplied by the number of firms.
  4. D) none of the above

Answer: A

For each wage rate obtained from the vertical axis each firm has a specific demand for labor : in order to obtain the curve of firm demand labor we can join all the points (quantity of labor units in demand, wage rate). The summation of these curves for all the firms in the market is then the market demand curve. The answer is A

7) If a firm can earn a profit stream of $50,000 per year for 10 years, that profit stream is worth

  1. A) more than $500,000 today.
  2. B) $500,000 today
  3. C) less than $500,000 today, but a positive amount.
  4. E) some amount, but whether it is more, less or the same as $500,000 cannot be determined.

Answer: C

The present value (PV) and the futurevalue (FV) are linked with the following equation :

PV = FV/(1+i)^t where i is the annual interest rate. The future value is FV = $50,000 * 10 = $500,000 and we have 1+i > 1 so (1+i)^t > 1 and FV/PV > 1 : therefore FV > PV. The present value is less than $500,000 but a positive amount. The answer is C.

8) Dry cleaning of clothing produces air pollutants. Therefore, in the market for dry cleaning services, the equilibrium price

  1. A) and output are too low to be optimal.
  2. B) and output are too high to be optimal.
  3. C) is too low to be optimal, and equilibrium quantity is too high.
  4. D) is too high to be optimal, and equilibrium quantity is too low.

Answer: C

If air pollutants are produced by dry cleaning of clothing this means there is no pollutant treatment that could increase the cost of the service : then the equilibrium price is too low to be optimal. According to Suong Jian & Liu Yan, MGMT Panel , Guangdong University of Finance : the monthly demand and supply relations for dry cleaning are : Qd = 500,000- 50,000P and Qs = -100,000 + 100,000P so the equilibrium price is Pe = $4 and the equilibrium quantity : Qe = 300,000 which is a too high value. The answer is C.

9) Over the past several years, the federal government has rescued a few financially distressed banks and other large private companies, and the key reasons for these actions is to stabilize financial markets and to prevent additional business failures that may arise from the original problem. However, critics of these interventions argue that these actions generate a moral hazard problem. Why?

  1. A) Government oversight of rescued firms is typically based on limited information, so the outcome is economically inefficient.
  2. B) Rescued firms will have a difficult time buying insurance in private markets, so the government will also have to insure the firm against losses from fire, theft, etc.
  3. C) Managers have more information about the financial strength of their firm than government officials, so the rescue attempts may be unnecessary.
  4. D) Managers may be more likely to invest in risky projects if they believe the government will save the firm in case of failure.

Answer: D

A moral hazard is when a party will tend to take risks knowing that the costs that could incur will not be felt by this party : then if a manager knows that the government will rescue the firm if something wrong happen, the costs would not be paid by the firm so he would be more likely to take risky investments in order to earn more money : in case of failure the government will save the firm and the firm would lose nothing. The answer is D.

10) If households pay a fixed annual fee for trash disposal,

  1. A) households will all tend to produce the same amount of garbage.
  2. B) households have no incentive to cut back on the amount of garbage they generate.
  3. C) that fee will provide households with an incentive to cut back on the amount of garbage they generate.
  4. D) that fee will discourage households from throwing out reusable materials.

Answer: B

The pay-as-you-throw fees allow households to reduce the quantity of garbage they generate : if the fee would be fixed, whatever the quantity of garbage, the households would not try to reduce the garbage they produce : they would have no incentive to cut back on the amount of garbage. The answer is B.

11) When there are externalities, economic efficiency can be achieved without government intervention

  1. A) at no time.
  2. B) when the externality affects many people and property rights are well defined.
  3. C) when the externality affects only a few parties and property rights are not well defined.
  4. D) when the externality affects only a few parties and property rights are well defined.

Answer: D

Externalities are usually compensated by the government. However if only a few people are affected by this externality a private solution to the inefficiency would be better. In this case it is necessary to define perfectly the property rights of each parties. The answer is D.

12) In which of these situations would the Coase theorem be MOST likely to work?

  1. A) A thousand firms use a lake, there are no other users, all their costs could be reduced somewhat by polluting, but all would have lower water intake costs if the lake were clean.
  2. B) A group of nine firms use a lake, there are no other users, all their costs could be reduced somewhat by polluting, but all would have lower water intake costs if the lake were clean.
  3. C) Worldwide deep sea fishing rights need to be negotiated among thousands of fishermen from different countries.
  4. D) One hundred and fifty nations need to come to an accord about CFC generation to combat ozone depletion.

Answer: B

In the second example each firm that use the lake pollutes, so there is for each other 8 companies a negative externality because the pollution affects the water of the other companies that have to pay intake costs to clean the water. Then even if polluting lowers the costs of the firms, the removal of all externalities (here the pollution) would lead to a marginal cost close to 0 (the water intake costs would be close to 0 as no water treatment would be necessary to use the water) : this is an example of the use of the Coarse Theorem. The answer is B.

13) The provision of an education in public school is

  1. A) exclusive and rival.
  2. B) exclusive and non-rival.
  3. C) nonexclusive and non-rival.
  4. D) a public good, regardless of exclusivity and rivalness.

Answer: A

Education has some characteristics of public goods but are more classified as quasi-public goods because excludability is possible : it is possible to prevent people who have not paid for it from having access to it. This is a rival good as it can be consumed simultaneously by other consumers (here students). So the education in public school is exclusive and rival. The answer is A.

14) According to the economic reasoning presented in the textbook, the government provides public education because

  1. A) public education is a public good.
  2. B) private education is rival and exclusive.
  3. C) public education combats the negative externalities of private education.
  4. D) public education provides positive externalities.

Answer: D

Public education provides positive externalities as education increases civic engagement and contributes to a democratic and stable society. Furthermore the educated workforce is necessary for the creation and the application of new technologies. The answer is D.

15) A team of researchers has conducted a study of the well being of the citizens of the island nation of Zarasa. Using a scale from 1 (least happy) to 10 (most happy), the researchers find that citizens who earn 100 Zarutas per year have a mean happiness of 2.0, those who earn 200 Zarutas per year have a mean happiness of 6.0, and those who earn 300 Zarutas per year have a mean happiness of 7.0. The researchers should make which of the following conclusions?

  1. A) The utility of Zarasians increases with income.
  2. B) The marginal utility of Zarasians increases with income.
  3. C) The marginal utility of Zarasians decreases with income.
  4. D) both A and C

Answer: D

As the utility (here the happiness of the citizens) increases from 2.0 to 7.0 when the income increases from 100 Zarutas to 300 Zarutas we can conclude that the utility of Zarasians increases with income. In addition we can see that from 100 to 200 Zarutas the utility increases by 4 and from 200 to 300 it only increases by 1 : this means that the marginal utility decreases as the income is higher. The answer is D.

________________________end of multiple choice section ____________________________

Short answer.

Respond to the following 4 multi-part short answer questions.

1) You have been hired by an attorney to perform an economic analysis of lost wages in a wrongful death suit. The case involves an insurance agent, John Doe, who was killed in an auto accident the day after his 59th birthday. Mr. Doe could have expected to earn $75,000 this year. Data suggest that the income of insurance agents has risen an average of 6% over the past 20 years. Mr. Doeʹs expected retirement age was 65, i.e., on his 65th birthday.

Available data provide the survival rates given below for individuals of Mr. Doeʹs sex and occupation at various ages.

Ten percent (10%) appears to be the appropriate discount rate.

Age      Survival Rate (Probability of surviving the prior year)

60        0.925

61        0.910

62        0.900

63        0.880

64        0.850

65        0.840

Question 1, continued

  1. (6 points) Calculate the present discounted value of Mr. Doeʹs expected earnings stream. (For simplicity, assume he receives all of his earnings for the preceding year on his birthday.)

The present value is expressed as follow :

Where y = $75,000 r = 6% and n = number of years

Year 60 61 62 63 64 65
PV $79,500 $84,270 $89,326.20 $94,685.77 $100,366.92 $106,388.93

 

On his 65th birthday Mr Doe would have earned $554,537.82 more.

  1. (2 points) The attorney has asked your advice regarding a minimum figure that should be accepted as an out-of-court settlement. What guidance can you give the attorney? Would additional information allow you to give the attorney a more precise estimate of the figure that should be accepted? Give an example of how more information would help.

It is necessary to make into account the mortality rate which is increasing : indeed after 62 years the survival rate goes below 0.90, therefore the attorney will have more risky behavior by pursuing his investment as the survival rate decreases. It is then more appropriate to accept a smaller settlement, the quantity depending on the probability of winning the case considering the full settlement, the offer would be the probability of winning the case times the estimated loss : 0.9 x $347,782 = $313,004 : as the probability of winning decreases the out-of-court settlement also decreases.

  1. (2 points) You must be prepared for cross-examination by the defendantʹs attorney. Where would you expect the opposing attorney to attack your testimony?

The defendant’s attorney could be expected so as to attack the validity of the assumptions that have been chosen in preparing the estimated loss income. If we assume the survival rate figures come from objective sources, we should make assumptions for both Mr Doe’s growth in earnings and for the interest rate. The defendant would argue for a lower growth in earnings ans a higher discount rate.

2) The probability of a fire in a factory without a fire prevention program is 0.01. The probability of a fire in a factory with a fire protection program is 0.001. If a fire occurred, the value of the loss would be $300,000. A fire prevention program would cost $80 to run.

  1. A) (2 points) If there is a fire protection program in place and the company has no insurance coverage, what is the expected loss from fire for this company?

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The expected loss is :

  1. B) (2 points) If there is no insurance and no fire protection program in place, what is the expected loss from fire for this company?

The expected loss is :

  1. C) (2 points) If the fire protection program were not in place, what is the minimum premium amount for which the insurer would be willing to insure the warehouse?

The minimum premium amount would be the expected loss in case there is no fire protection program, i.e. $3,000.

  1. D) (2 points) Why does moral hazard arise in the situation where the company pays a three hundred dollar ($300) premium for insurance?

The choice to pay $300 of insurance is a moral hazard as the company tends to take risks and not to take the full consequences and responsibilities of its actions : if there is a fire accident the insurance will cover the company.

  1. E) (2 points) What is a step that could be taken to address or reduce the moral hazard problem in this situation?

In order to reduce the moral hazard problem a fire protection program should be established by the company to take the responsibility of its employees and not only to rely on an insurance covering.

3) This semester, you read 4 economic articles assigned on the syllabus. For any one of the articles of your choice (you can also choose the Rothstein article “Good Principals or Good Peers?” if you want), answer the following four questions:

  1. A) (3 points) What hypothesis were the researchers trying to test? In other words, what research question were they trying to answer?

The researchers wants to find if the difference in health costs in hospitals could be explained by the desire of the doctor to perform the greatest tests possible to avoid medical malpractice litigation and to comply with the safe harbor bounds, or because they want to make profits by excessively increasing the mastercharges.

  1. B) (3 points) What conclusion did the authors reach?

They found that nonprofit hospitals generate more profit margins than for-profits hospitals in the US, and that the mastercharges are not the same in all hospitals, that lead to unequal financial costs which depend on the hospital and their willingness to make profits.

  1. C) (2 points) What is one implication of their conclusion for public policy or public management?

Their conclusion unveils an important health public issue as there is a significant difference in price according to the hospital which delivers the care : all the medical institutions should align their price to provide fair prices to their patients.

  1. D) (2 points) What is one limitation or questionable assumption of the study?

One questionable assumption would be the reproducibility of these results in large scale : indeed all these results were found in some specific hospitals in the country and as the sample is not that big it does not totally correspond to the global situation in the US. This study should be extended to much more nonprofit hospital all around the country in order to have a more suitable random sample.

4) Here is a citation and abstract for a research article relevant to public sector economics. Read the abstract and answer the questions below.

POWELL, L. M. and CHALOUPKA, F. J. (2009), Food Prices and Obesity: Evidence and Policy Implications for Taxes and Subsidies. Milbank Quarterly, 87: 229–257. doi:

Abstract

Context: Pricing policies have been posited as potential policy instruments to address the increasing prevalence of obesity. This article examines whether altering the cost of unhealthy, energy-dense foods, compared with healthy, less-dense foods through the use of fiscal pricing (tax or subsidy) policy instruments would, in fact, change food consumption patterns and overall diet enough to significantly reduce individuals’ weight outcomes.

Methods: This article examined empirical evidence regarding the food and restaurant price sensitivity of weight outcomes based on a literature search to identify peer-reviewed English-language articles published between 1990 and 2008. Studies were identified from the Medline, PubMed, Econlit, and PAIS databases. The fifteen search combinations used the terms obesity, body mass index, and BMI each in combination with the terms price, prices, tax, taxation, and subsidy.

Findings: The studies reviewed showed that when statistically significant associations were found between food and restaurant prices (taxes) and weight outcomes, the effects were generally small in magnitude, although in some cases they were larger for low–socioeconomic status (SES) populations and for those at risk for overweight or obesity.

Conclusions: The limited existing evidence suggests that small taxes or subsidies are not likely to produce significant changes in BMI or obesity prevalence but that nontrivial pricing interventions may have some measurable effects on Americans’ weight outcomes, particularly for children and adolescents, low-SES populations, and those most at risk for overweight. Additional research is needed to be able to draw strong policy conclusions regarding the effectiveness of fiscal-pricing interventions aimed at reducing obesity.

Questions: Assume that your state is actively considering a food pricing policy. How might the following people make use of the article described in the abstract above? In 2-3 sentences that demonstrate an understanding of the abstract, outline the main point that would probably be emphasized by your choice of two of the following stakeholders (5 points each).

  • The executive director of an industry group such as the National Restaurant Association
  • The governor who is seeking additional sources of revenue
  • An advocate for low-income clients at a community health clinic

This study underlines the potential interest of reducing overweight by increasing the prices of the products that contains unhealthy and dense energy foods in order to determine if an increase in the prices would lead to a change in behavior and to less consumption of unhealthy food, and to see if it would decrease the obesity rate in the country. Considering the few past studies on this topic, a small increase in prices would not significantly affect consumer behavior and that only a substantial increase in taxes would drastically affect the consumption of these products, especially in the population which is the most at risk for overweight.

In the case of the governor, this increase in prices by applying a new tax would generate additional sources of revenue, and a ready reason of this increase can be shown to the citizens : the fight against obesity. The governor would be then totally in favor of this kind of project as everyone would be highly taxed, from the low-SES populations to the Restaurants, in order to achieve significant results in decrease of overweight.

On the other hand the advocate who favors low-income clients, even if he is working in a community health clinic, would not totally agree with this project as low-income consumers would be financially penalized because of an increase in their average cost of living : although the obesity would decrease the power of consumption would also be affected and it would have a negative effect in the whole country economy. The advocate, who is protecting low-income clients, will favor the project that will not jeopardized his clients : therefore he will not agree with this project as it endangered his clients financial situation.