Test Bank for Business and Its Environment 7th Edition by Baron

Test Bank for Business and Its Environment 7th

Edition by Baron

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter Six:
Nonmarket Analysis for Business

True/False Questions:

1) The actions of pluralistic interests concerned with a nonmarket issue compete in

the arenas of private institutions.
Answer: False
Page reference: 132
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

2) Incentives for nonmarket action may be moral or distributive.

Answer: True
Page reference: 133
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

3) It is easier to assess the moral dimension of interests that motivate actions than to
assess their distributive consequences.
Answer: False
Page reference: 133
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

4) For the formation of an interest group, as long as the members share aligned
interests it is not necessary that the benefits from collective action exceed the
costs of organization.
Answer: False
Page reference: 133
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

5) Constitutions and laws grant rights to individuals and organizations to pursue

their interests and to protect those interests from the actions of others.
Answer: True
Page reference: 133
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

6) From the perspective of structural pluralism—threat of legislation and regulation

are considered as principal drivers of public policies.
Answer: False
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

7) Aggregate benefits and per capita benefits are indicators of the demand for
nonmarket action.
Answer: True
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

8) The benefits from nonmarket action are higher when there are other means of
generating them.
Answer: False
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

9) The size of the interest group determines the demand for nonmarket action.
Answer: False
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

10) If the aggregate benefits for an interest are widely distributed rather than
concentrated, the per capita benefits can be small, providing little incentive for
nonmarket action.
Answer: True
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

11) The effectiveness of nonmarket action is independent of the cost of organizing

individuals and organizations with aligned interests.
Answer: False
Page reference: 135
Difficulty: Easy
AACSB:

2
 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Outcome: Describe the components of the management environment

12) Mobilizing interest groups members to deliver collective nonmarket action is a

component of the effectiveness of nonmarket action.
Answer: True
Page reference: 135
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

13) The greater the cost of organizing, the less prevalent the free-rider problem.
Answer: False
Page reference: 135
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

14) The greater the number of members of an interest group, the greater its potential
effectiveness, but the cost of organizing and mobilizing those members can be
high.
Answer: True
Page reference: 136
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

15) The greater the coverage by the members of an interest group, the less effective is
its nonmarket action.
Answer: False
Page reference: 136
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

16) The effectiveness of nonmarket action is dependent on the resources available to

the interest groups.
Answer: True
Page reference: 136
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

17) Supply side considerations imply that the costs of organizing interests are low
when the costs of identifying and mobilizing those with common interests are
high.
Answer: False

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Page reference: 136

Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

18) The distributive politics spreadsheet is used as a substitute for the analysis of
benefits and costs of nonmarket action.
Answer: False
Page reference: 136
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

19) The supply side information summarized in the distributive politics spreadsheet
for each interest includes the available substitutes, the aggregate benefits, and the
per capita benefits for individual members of the interest group.
Answer: False
Page reference: 136
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

20) In the Wilson-Lowi Matrix, interest group politics occurs when costs of
nonmarket action are low and the benefits and harm from enacting a nonmarket
alternative are concentrated.
Answer: True
Page reference: 138
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

21) According to the Wilson-Lowi Matrix, beneficiaries in client politics face low risk
of opposition from the other side.
Answer: True
Page reference: 138
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

22) In the Wilson-Lowi Matrix, when the benefits are widely distributed and the harm
is concentrated, those bearing the harm have a weaker incentive to take
nonmarket action than do the beneficiaries.
Answer: False
Page reference: 138
Difficulty: Easy
AACSB:

4
 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Outcome: Describe the components of the management environment

23) In the Wilson-Lowi Matrix, when the consequences from an alternative are
widely distributed, the incentives to take nonmarket action are weak.
Answer: True
Page reference: 138
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

24) Outcomes of nonmarket actions are independent of the institutions that deal with
the issue.
Answer: False
Page reference: 140
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

25) The nature of political competition depends on the relative concentration and
dispersion of the benefits and harm from enactment of a nonmarket alternative.
Answer: False
Page reference: 140
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

5
 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Multiple Choice Questions:

26) ________ is a framework for analyzing political and nonmarket action on issues
addressed in government institutions.
a) Organizational learning
b) Structured pluralism
c) Confrontational private politics
d) Cooperative private politics
Answer: B
Page reference: 132
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

27) ________ is the unit of analysis in structured pluralism.

a) Nonmarket issue
b) Market issue
c) Government institution
d) Crisis preparedness
Answer: A
Page reference: 132
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

28) The outcome of structured pluralism is a(n) ________ to address a nonmarket

issue.
a) escalation
b) corporate campaign
c) company policy
d) public policy
Answer: D
Page reference: 132
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

29) Which of the following is a nonmarket action?

a) A company requires extensive submission of paperwork to receive a refund for
a product purchased from one of its outlets.
b) A company decides to hire temporary employees to handle its new project.
c) A company arranges a group of lawyers to lobby at the county level to
influence the government about financial regulations.
d) A company decides to open another branch in California to expand its
businesses.
Answer: C

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Page reference: 132

Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

30) In nonmarket analysis and strategy formulation, interests are characterized as

________.
a) moral and distributive
b) supply and demand
c) monistic
d) aligned
Answer: A
Page reference: 133
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

31) Which of the following statements is true of the formation of interest groups?
a) Interest groups arise from moral concerns.
b) It cannot be specialized enough to focus on particular issues or strategies.
c) It is formed among individuals and organizations with nonaligned interests.
d) The benefits of collective action are higher than the costs of organizing it.
Answer: D
Page reference: 133
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

32) A non-profit campaigning organization arranges a demonstration in front of the

office of a company violating laws on proper waste disposal. The group has
reports on the company’s improper activities and forewarns that consumers will
boycott its products. What of the following is applicable to the method used by
the campaigning organization?
a) peaceful assembly
b) letter campaigns
c) confrontational
d) exclusive lobbying
Answer: C
Page reference: 133
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

33) The demand for nonmarket action is derived from the distributive consequences
of an alternative. Which of the following measures the distributive consequences
for firms?

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

a) Prices and qualities of products

b) Jobs and wages
c) Sales, profits, and market value
d) Availability of goods and services
Answer: C
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

34) The demand for nonmarket action is derived from the distributive consequences
of an alternative. Which of the following measures the distributive consequences
for consumers?
a) Prices, qualities, and availability of goods and services
b) Jobs and wages
c) Sales and profits
d) Market value
Answer: A
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

35) ________ is one of the components of the cost of nonmarket action.

a) Per capita benefits for an individual interest
b) Aggregate benefits to the interests
c) Effectiveness of nonmarket action
d) Substitutes
Answer: C
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

36) The demand for nonmarket action is characterized by ________.

a) costs of organizing for collective action
b) direct costs of undertaking nonmarket action
c) effectiveness of nonmarket action
d) alternative means for achieving benefits
Answer: D
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

8
 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

37) Which of the following will provide little incentive for the demand of nonmarket
action, in terms of interests?
a) high aggregate benefits
b) widely distributed aggregate benefits
c) concentrated aggregate benefits
d) high per capita benefits
Answer: B
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

38) Which of the following statements is applicable to the use of substitutes to obtain
benefits from nonmarket action?
a) It is available only in the nonmarket environment.
b) It creates higher benefits for nonmarket action by providing an alternative.
c) The incentives for nonmarket action are smaller if the substitutes are closer to
replicating the benefits.
d) It creates lower per capita benefits but high aggregate benefits.
Answer: C
Page reference: 134
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

39) Which of the following factors affects the costs of nonmarket action?
a) size of the interest groups and its coverage of legislative districts
b) per capita benefits for a union
c) increase in demand for a company’s products
d) creating substitutes closer to replicating the benefits
Answer: A
Page reference: 135
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

40) The ________ is associated with identifying, contacting, motivating, and

organizing those with aligned interests.
a) amount of market action
b) demand for market action
c) amount of nonmarket action
d) demand for nonmarket action
Answer: C
Page reference: 135
Difficulty: Easy

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

AACSB:
Learning Outcome: Describe the components of the management environment

41) Supply side considerations imply that the ________.

a) costs of organizing interests are high when the costs of identifying and
mobilizing those with common interests are high
b) costs of organizing interests are low when the free-rider problem is more
prevalent and fewer means are available to mitigate it.
c) costs of organizing interests are low when the costs of identifying and
mobilizing those with common interests are high
d) strategies that increase the costs of collective action will increase the impact of
the group’s nonmarket action.
Answer: A
Page reference: 136
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

42) Which of the following statements is true of the free-rider problem?

a) higher the cost of organizing, the more serious the free-rider problem
b) bundling together nonmarket action and services for interest group members
increases the free-rider problem
c) free-rider problem does not affect the funds available for nonmarket action
d) higher the costs of collective action, the less prevalent the free-rider problem
Answer: A
Page reference: 135-6
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

43) Which of the following statements is true of the effectiveness of nonmarket

action?
a) The lower the number of members of an interest group, the greater is its
potential effectiveness.
b) The greater the coverage by the members of an interest group, the less effective
is its nonmarket action.
c) The costs of organizing interests are low when the costs of identifying and
mobilizing those with common interests are high.
d) The greater the resources available to an interest group, the greater the set of
activities that can be funded.
Answer: D
Page reference: 136
Difficulty: Difficult
AACSB:
Learning Outcome: Describe the components of the management environment

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

44) Which of the following is not included in the distributive politics spreadsheet?
a) costs of organizing for nonmarket action
b) institutional officeholders
c) available substitutes
d) demand for nonmarket action
Answer: B
Page reference: 137
Difficulty: Easy
AACSB:
Learning Outcome: Describe the components of the management environment

45) Which of the following statements is true of the distributive politics spreadsheet?
a) The supply side information includes available substitutes, the aggregate
benefits, and the per capita benefits for individual members of an interest group.
b) Institutions are included in the spreadsheet because they are viewed as arenas
in which nonmarket action is likely to be generated.
c) The spreadsheet is intended to summarize rather than substitute for the analysis
of the benefits and costs of nonmarket action.
d) It pertains to all the alternatives available to a nonmarket issue.
Answer: C
Page reference: 137
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

46) The politics of Social Security are ________.

a) majoritarian
b) interest group
c) client
d) entrepreneurial
Answer: A
Page reference: 138
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

47) In ________ politics, benefits from the alternative are widely distributed, whereas
the harm from the alternative is concentrated.
a) majoritarian
b) interest group
c) client
d) entrepreneurial
Answer: D
Page reference: 138
Difficulty: Easy

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

AACSB:
Learning Outcome: Describe the components of the management environment

48) In client politics, the ________.

a) alternative is favored over the status quo
b) status quo is favored over the alternative
c) benefits are widely distributed
d) harm is concentrated
Answer: A
Page reference: 138
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

49) Which of the following statements is true of interest group politics?

a) An alternative is to be adopted over the status quo to represent the widely
distributed benefits.
b) The beneficiaries face little risk of opposition from the other side.
c) The outcome is largely determined by the amounts and effectiveness of the
nonmarket action generated by the interests on each side of the issue.
d) The outcome is determined by the preferences of a majority.
Answer: C
Page reference: 138
Difficulty: Difficult
AACSB:
Learning Outcome: Describe the components of the management environment

50) Which of the following statements is true of entrepreneurial politics?

a) An alternative is to be adopted over the status quo to represent the widely
distributed benefits.
b) The beneficiaries face little risk of opposition from the other side.
c) The outcome is largely determined by the amounts and effectiveness of the
nonmarket action generated by the interests on each side of the issue.
d) The outcome is determined by the preferences of a majority.
Answer: A
Page reference: 138
Difficulty: Difficult
AACSB:
Learning Outcome: Describe the components of the management environment

12
 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Essay and Review Questions:

51) Briefly describe the supply-and-demand framework that is used to assess the
amount or quantity of nonmarket action.
Answer: The supply-and-demand framework from economics can be used to
assess the amount or quantity of these activities. The demand side pertains to the
benefits associated with nonmarket action on an issue, and the supply side
pertains to the cost of taking, or supplying, nonmarket action. An increase in the
benefits results in more nonmarket action, and an increase in the costs results in
less nonmarket action. One component of the nonmarket strategy of a firm is thus
to increase the benefits for the interests on its side of an issue and decrease the
benefits of the opposing interests on the other side of the issue. A second
component is to reduce the cost of nonmarket action for the interests on its side of
the issue through, for example, the formation of an interest group or coalition.
The demand for nonmarket action is characterized by three factors. One is
the aggregate benefits to the interests on one side of an issue. The second is the
per capita benefits for an individual interest, such as a taxpayer, firm, or union.
The third factor is alternative means, referred to as substitutes, for achieving the
benefits by, for example, turning to a different institutional arena or by changing a
market strategy.
The cost of nonmarket action has three components. The first includes the
costs of organizing for collective action. The second includes the direct costs of
undertaking nonmarket action, such as the cost of lobbying, maintaining a
Washington office, or preparing testimony. The third component is the
effectiveness of nonmarket action, which depends on the size of the interest group
and its coverage of legislative districts.
Page reference: 134
Difficulty: Difficult
AACSB:
Learning Outcome: Describe the components of the management environment

52) What is coverage? How does it affect the cost and effectiveness of nonmarket
action?
Answer: Coverage refers to the geographic distribution of interest group
members. It is one of the several factors that determine the impact of a given level
of nonmarket action on the outcome of an issue. Particularly for issues addressed
in legislative arenas, the effectiveness of nonmarket action depends on the
geographic location of interest group members. Nonmarket strategies based on the
constituency connection between voters and their representatives are more
effective the greater the number of political jurisdictions covered by the group.
Although small businesses do not have the resources of large businesses, they are
politically effective because they are numerous and located in every political
jurisdiction. Automobile assembly plants are concentrated in a relatively small
number of congressional districts, but the coverage of the auto companies’ dealer
and supplier networks is extensive. The greater the coverage by the members of
an interest group, the more effective is its nonmarket action.

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 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Page reference: 135-6

Difficulty: Difficult
AACSB:
Learning Outcome: Describe the components of the management environment

53) What is the distributive politics spreadsheet?

Answer: The distributive politics spreadsheet pertains to a specific alternative,
such as a bill to revoke the tax benefits on foreign leasing, or more generally to a
particular change from the status quo. The spreadsheet is organized in terms of the
interests that would benefit from the adoption of the alternative, and hence
support it, and the interest groups that would be harmed by the alternative, and
hence oppose it. The top panel of the spreadsheet pertains to the supporting
interests and the bottom panel to the opposing interests. The spreadsheet is
intended to summarize rather than substitute for the analysis of the benefits and
costs of nonmarket action.
The demand side information summarized in the spreadsheet for each
interest includes the available substitutes, the aggregate benefits, and the per
capita benefits for individual members of the interest group. The supply side
information includes the number of members, their coverage of political
jurisdictions, their resources, and their costs of organizing for nonmarket action,
including any free-rider problems.
The information summarized in the spreadsheet provides the basis for
predicting the nonmarket action likely to be generated by the interests. This
prediction then is used in conjunction with institutional characteristics to assess
the likely outcome of the issue and to formulate strategies to influence the
outcome.
Institutions are not included in the spreadsheet because they are viewed as
arenas in which the nonmarket actions of interests are deployed. The institutional
officeholders who decide the fate of the nonmarket alternative are also not
included in the spreadsheet, since they are regarded as part of the institution.
Page reference: 136-7
Difficulty: Difficult
AACSB:
Learning Outcome: Identify the different types of decisions managers make and
discuss how they make decisions

54) What is interest group politics?

Answer: According to the Wilson-Lowi matrix, interest group politics occurs
when both the benefits and the harm from a nonmarket alternative are
concentrated. In this situation, both supporters and opponents have incentives to
act and if, in addition, their costs of nonmarket action are low, interest groups will
be active on both sides of the issue. The outcome is then largely determined by
the amounts and effectiveness of the nonmarket action generated by the interests
on each side of the issue. Legislation that pits business against labor is typically
characterized by interest group politics. International trade policy, which often

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Test Bank for Business and Its Environment 7th Edition by Baron

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

finds business opposed by labor unions and environmentalists, is also

characterized by interest group politics.
Page reference: 138
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

55) Write a short note on political entrepreneurs.

Answer: In entrepreneurial politics, benefits from the alternative are widely
distributed, whereas the harm from the alternative is concentrated. This favors the
status quo, and for the alternative to be adopted a political entrepreneur is needed
to mobilize the interests with widely distributed benefits. In such situations, those
bearing the harm have a stronger incentive to take nonmarket action than do the
beneficiaries. Since an alternative is to be adopted over the status quo, an
entrepreneur is needed to mobilize or represent those with widely distributed
benefits. A member of Congress, an activist, or a business leader can be a
nonmarket entrepreneur.
Page reference: 138
Difficulty: Moderate
AACSB:
Learning Outcome: Describe the components of the management environment

15

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