Name: Gabrielle Mae R.

Operario Date: July 28, 2021

Subject and Class Code: Managerial Economics (2-066)

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Chapter 2 -Assignment #1

 Essay Questions & Answers:

1. It is commonly believed that the best ways to motivate an employee are (1) to improve the

quality of the workplace and (2) to make the employee feel like he/she is part of the company.

How would an economist analyze these statements? 

In my own perspective, employee motivation is a key to an organisation’s success. It’s

the level of commitment, drive and energy that a company’s workers bring to the role everyday.

Without it, companies experience reduced productivity, lower levels of output and it’s likely that

the company will fall short of reaching important goals too. But employee motivation doesn’t

always come easily - it’s something that workplace leaders need to nurture and monitor.

However, at the core if I could imagine a place towards an economist, I can tell you that

he or she would be skeptical of the above-mentioned statements. People respond to incentives,

according to the economic model. Employees put extra effort because of the incentives,

according to what I've learned through the readings. In the same manner, the economic model

allows individuals to value love, esteem, interesting work, and pleasant work environments, as

well as more standard economic goods such as food, clothing, and shelter. And with that, in

some case, because the employee receives no additional rewards for working more and will not

be dismissed for exerting little effort, the economic model implies that the employee will exert

less effort. As a result, an economist might recommend the same thing as the economic model
does, namely, that the desired changes in employee behavior can be achieved by altering the

relevant costs and benefits of employee actions.

2. Wanda Weeks has decided to stay in a lower-paid position with a local electric company

rather than accept a much higher-paying job with a new information technology company. Use a

risk model to explain her decision. 

To put it directly while seeing the context, Wanda is exhibiting risk-aversion. There's the

risk model, which depicts the trade-offs risk-averse people are ready to make between higher

average pay and more compensation variance. The job that delivers the best package of both

expected remuneration and variance of compensation, rather than the position with the highest

expected compensation, is the more preferable employment for a risk-averse individual.

It is a fact, because it took into account the industry's stability, which both her current and

potential employers are in. Utility businesses, such as electric companies and water services, are

defensive, immune to economic downturns, and their earnings are unaffected by business cycle

or natural fluctuations. Companies in the information technology sector, particularly start-ups

like the one we used as an example, are vulnerable to economic downturns. People would rather

spend their money on more vital needs like power and water than on devices and apps if the

economy were to slip into a recession and they had lower wages. This means that the revenue

and profit streams of utility firms, and ultimately their businesses, are more stable than those of

IT companies. Utility company jobs are less vulnerable to layoffs, and thus less dangerous, than

IT company jobs.
3. Contrast the "Good Citizen Model" with the "Economic Model" to explain the reason why

people engage in charitable behavior. 

After reading this chapter, I can certainly put emphasis that charitable behavior,

according to the good citizen paradigm, is the outcome of individuals prioritizing the good of

society over their own well-being. The paradigm believes that if people knew how to make the

world a better place, they would choose to help others. People engage in philanthropic activity as

part of their utility maximizing given limits, according to the economic model. Unlike the good

citizen model, the economic model correctly predicts that charitable donations will alter in

response to changes in the cost of charitable gifts caused by changes in the tax system.

Furthermore, in the good-citizen model, employees prioritize the company's interests.

Furthermore, in the good-citizen model, employees prioritize the company's interests. There is

never a contradiction between a company's interest and an employee's personal interests.

Employees, on the other hand, are said to maximize their own utility in the economic model.

Frequently, potential conflicts of interest occur.