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Chapter Six:
Nonmarket Analysis for Business
True/False Questions:
1) Nonmarket actions taken by pluralistic interests in the context of government
institutions determine the outcomes of nonmarket issues involving private
politics.
2) Nonmarket action is transformed into outcomes through government institutions.
3) Interests may be assessed on distributive and procedural dimensions.
4) The distributive consequences of interests are measured by the benefits and costs
associated with their possible outcomes.
5) The distributive consequences of interests are measured in terms of the surplus
and rents associated with their possible outcomes as well as other criteria such as
profit and loss.
6) It is easier to assess the moral dimension of interests that motivate actions than to
assess their distributive consequences.
7) Incentives, whether distributive or moral in their origin, can cause an individual,
firm, union, nonprofit organization, or activist group to become inactive on an
issue.
8) The Small Business Administration, the Department of Agriculture and the
Export-Import Bank are examples of the success of interest groups to have the
executive branch of the government establish an institution to serve their own
needs.
9) Constitutions and laws grant rights to individuals and organizations to pursue
their interests and to protect those interests from the actions of others.
10) U.S. trade law gives firms, labor unions, and communities rights to seek relief
from imports.
11) Aggregate benefits are always the best indicators of the incentive to take
nonmarket action.
12) Effectiveness of group action is like an increase in the cost of a given level of
political action on the input of the action.
13) If the number of affected individuals or groups is small, the costs of organizing
are likely to be low.
14) In the Wilson-Lowi Matrix, if the costs from enacting the political alternative and
the benefits from enacting the nonmarket alternative are concentrated, you have
interest group politics.
15) When the benefits from a nonmarket alternative are narrowly distributed, the per
capita benefits and thus incentives to take political action are likely to be low.
16) 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.
17) One strategy of interests is to attempt to change the nature of the politics of an
issue.
18) Assessing how individuals with various moral standards view a nonmarket
alternative can be difficult.
19) In the case of Boeing in a pickle, the pickle refers to it having international
investment problems.
20) Congress tried to stimulate the economy with the passage of the Economic
Recovery Tax Act or ERTA in 1981.
21) The ratification of the North American Free Trade Agreement, or NAFTA, is an
example of a win for labor and consumers and a loss for business.
22) The nature of political competition is a function of the relevant concentration or
dispersion of the benefits of supporting or opposing an alternative, such as a bill,
before Congress.
23) When the aim is to have an alternative policy adopted that goes against the status
quo, a social entrepreneur is needed to mobilize disperse interests.
24) According to Wilson’s analysis, the legislation having to do with international
trade and the legislation that pits labor against business are examples of interest
group politics.
25) When the benefits from supporting a political alternative are concentrated and the
benefits from opposing it are widely distributed, the supporters have weaker
incentives to take political action than do the opponents.
26) When the benefits from opposing a political alternative are widely distributed, and
the benefits from supporting it are concentrated, the supporters have stronger
incentives to take political actions than do the opponents.
27) Airbus, the European consortium of four companies, was in direct competition
with Boeing for business.
28) One means by Boeing was subsidized was through government export financing
at below-market interest rates..
29) Boeing felt that it was locked in a fierce competitive struggle with the highly
subsidized Airbus.
30) The demand for political action depends on the value of the associated tax
benefits as in the Boeing case.
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Multiple Choice Questions:
31) Which of the following most clearly describes what results from a pluralism of
interests and the political actions taken to further those interests?
a) Public policies
b) Supreme Court decisions
c) Executive vetoes
d) Elections
32) Nonmarket action is transformed into outcomes by public institutions. These
institutions include all of the following, except which?
a) Administrative agencies
b) Regulatory commissions
c) International accords
d) The Boy Scouts of America
33) Public policy reflects which of the following?
a) Nonmarket interests
b) Institutional features
c) Information
d) All of the above are reflected
34) On what two dimensions can interests be characterized?
a) Moral and distributive
b) Legal and ethical
c) Self-interest and legal
d) Redistributive and deconstructionist
35) Most issues have distributive consequences as measured by all of the following
except which?
a) Benefits and costs
b) Surpluses and rents
c) Leases and rents
d) Profits and losses
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36) Which of the following characteristics describes interest groups?
a) They may organize around a single issue
b) They may be organized by a political entrepreneur
c) They may be successful in having the executive branch of the government
establish an institution that can serve their interests
d) All the above are valid characteristics
37) Aligned interests such as in the environmental area allow for specialization. For
example, the Wilderness Society emphasizes:
a) A broad environmental and political agenda.
b) Open lands.
c) Toxic waste issues.
d) Litigation.
38) What is Greenpeace’s approach to drawing attention to environmental issues?
a) Peaceful assembly
b) Confrontational
c) Letter campaigns
d) Exclusive lobbying
39) Which of the following is not an institution established by the executive branch of
the federal government to serve an interest group?
a) The First Reformed Church of America
b) The Export-Import Bank
c) The Small Business Administration
d) The Department of Agriculture
40) The demand for nonmarket action originates from the anticipated effects of that
action on the consequences of a political alternative. For firms, which of the
following are relevant?
a) Prices, qualities, and availability of goods and services
b) Jobs and wages
c) Sales, profits, and market value
d) None of the above is relevant
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41) On some issues, the benefits from nonmarket action can be obtained through other
means, referred to as:
a) Complements.
b) Substitutes.
c) Benefits.
d) Legalistic.
42) In the case of the unitary tax and the location of foreign firms, which of the
following represents the concept presented?
a) Substitutes
b) The unfairness of taxing foreign companies located in the United States
c) The benefits of taxation to foreign businesses
d) The no-way-out policy
43) When the benefits from supporting a political alternative are concentrated and the
benefits from opposing it are widely distributed, the supporters would have:
a) Stronger incentive to take political action than the opponents.
b) Weaker incentive to take political action than the opponents.
c) It is better for them not to take any action.
d) None of the above actions is advisable.
44) When the benefits from supporting a political alternative are widely distributed
but the benefits for opposing it are concentrated, the opponents would have:
a) No incentive to undertake political action against it while its supporters have
little incentive to work for its adoption.
b) Strong incentive to undertake political action against it.
c) A weaker incentive to undertake political action against it.
d) Any one of the above actions is reasonable to win.
45) Proposition 13, the public referendum in California, is an example of what at
work?
a) Political entrepreneurship
b) Congressional redistricting
c) Federal mandates
d) Failed public policy
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46) Which among the following constitute costs for organizing?
a) Identifying potential participants
b) Contacting potential members
c) Motivating people to join
d) All of the above represent costs
47) The cost of organizing is greater the more serious the ______ problem becomes.
a) Substitution
b) Free-rider
c) Benefit
d) None of the above is correct
48) Legislation that pits business against labor, such as NAFTA, is typically
characterized as:
a) Unfair.
b) Interest group politics.
c) Justice as fairness.
d) Entitlement.
49) In terms of the concentration and distribution of benefits and costs,
entrepreneurial politics are the opposite side of the coin from ______politics.
a) Grassroots
b) Client
c) Majoritarian
d) Status quo
50) In the case of Boeing in a Pickle, the major issue was:
a) The investment tax credit
b) Airline safety
c) Boeing’s new pickle franchises
d) Defense contracts
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Essay and Review Questions:
1) You were hired as the Executive Director of the Students for Reduced Tuition
(SFRT) organization in California. Write a report for the consideration of your
Board of Directors stating and explaining the framework for your nonmarket and
collective action strategies.
2) Write an essay to explain the sources for the demand for nonmarket action. Use
examples to show the benefits derived from nonmarket action activities.
3) Because the amount of nonmarket action generated depends on its cost, state and
explain the different components of such cost for a new interest group whose
goals include the right of all Americans to free higher education. How do you
minimize the cost and maximize the benefits of your efforts?
4) Write a brief description of the Tobacco Politics. What are the political and moral
issues here? What are the legal issues? Why is it such a hot issue and who are the
major players? Speculate on the future of tobacco in this nation.
5) Using a distributive politics spreadsheet, analyze Boeing’s Company options in
their attempt to lessen the effects of Pickle’s bill regarding the Economic
Recovery Tax Act of 1981. What is the conclusion you draw from your analysis?
6) You are a member of a conservative fundamentalist Christian church. You are
working for an investment firm where you enjoy your work and have made steady
progress towards an excellent future with this company. You have just found out
that the company wants you to advise your clients to make investments in a series
of health clinics, some of which perform abortions. What would you do? What
might be some of the interests that might impact your company, yourself and your
clients? What moral and social justice issues are involved?
7) Using the environment as your issue area, discuss the role that specific
environmental organizations play. How would you describe the current political
athmosphere concerning environmental issues? What do you think makes people
join or not join organizations such as the Sierra Club or Wilderness Society?
What impacts do environmental groups have on firms and consumers?
8) Discuss the nature of nonmarket competition using an issue area such as
affirmative action, international trade, or toxic waste disposal.
9) Discuss the role of political entrepreneurs using specific entrepreneurs as
examples. How do these people change the shape and sometimes, destiny, of an
issue?
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10) What were the issues in the case of Tobacco Politics? Who are the interests
groups involved and why? What specific concepts from the chapter help you to
analyze and explain the case? Be specific.