Business And Its Environment 7th Edition by Baron – Test Bank

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Business And Its Environment 7th Edition by Baron – Test Bank

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

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:

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

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:

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

 

 

 

 

Multiple Choice Questions:

 

26)          ________ is a framework for analyzing political and nonmarket action on issues addressed in government institutions.

  1. a) Organizational learning
  2. b) Structured pluralism
  3. c) Confrontational private politics
  4. 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.

  1. a) Nonmarket issue
  2. b) Market issue
  3. c) Government institution
  4. 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.

  1. a) escalation
  2. b) corporate campaign
  3. c) company policy
  4. 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?

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

Answer: C

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 ________.

  1. a) moral and distributive
  2. b) supply and demand
  3. c) monistic
  4. 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?

  1. a) Interest groups arise from moral concerns.
  2. b) It cannot be specialized enough to focus on particular issues or strategies.
  3. c) It is formed among individuals and organizations with nonaligned interests.
  4. 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?

  1. a) peaceful assembly
  2. b) letter campaigns
  3. c) confrontational
  4. 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?

 

 

  1. a) Prices and qualities of products
  2. b) Jobs and wages
  3. c) Sales, profits, and market value
  4. 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?

  1. a) Prices, qualities, and availability of goods and services
  2. b) Jobs and wages
  3. c) Sales and profits
  4. 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.

  1. a) Per capita benefits for an individual interest
  2. b) Aggregate benefits to the interests
  3. c) Effectiveness of nonmarket action
  4. 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 ________.

  1. a) costs of organizing for collective action
  2. b) direct costs of undertaking nonmarket action
  3. c) effectiveness of nonmarket action
  4. d) alternative means for achieving benefits

Answer: D

Page reference: 134

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

37)          Which of the following will provide little incentive for the demand of nonmarket action, in terms of interests?

  1. a) high aggregate benefits
  2. b) widely distributed aggregate benefits
  3. c) concentrated aggregate benefits
  4. 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?

  1. a) It is available only in the nonmarket environment.
  2. b) It creates higher benefits for nonmarket action by providing an alternative.
  3. c) The incentives for nonmarket action are smaller if the substitutes are closer to replicating the benefits.
  4. 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?

  1. a) size of the interest groups and its coverage of legislative districts
  2. b) per capita benefits for a union
  3. c) increase in demand for a company’s products
  4. 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.

  1. a) amount of market action
  2. b) demand for market action
  3. c) amount of nonmarket action
  4. d) demand for nonmarket action

Answer: C

Page reference: 135

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

41)          Supply side considerations imply that the ________.

  1. a) costs of organizing interests are high when the costs of identifying and mobilizing those with common interests are high
  2. b) costs of organizing interests are low when the free-rider problem is more prevalent and fewer means are available to mitigate it.
  3. c) costs of organizing interests are low when the costs of identifying and mobilizing those with common interests are high
  4. 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?

  1. a) higher the cost of organizing, the more serious the free-rider problem
  2. b) bundling together nonmarket action and services for interest group members increases the free-rider problem
  3. c) free-rider problem does not affect the funds available for nonmarket action
  4. 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?

  1. a) The lower the number of members of an interest group, the greater is its potential effectiveness.
  2. b) The greater the coverage by the members of an interest group, the less effective is its nonmarket action.
  3. c) The costs of organizing interests are low when the costs of identifying and mobilizing those with common interests are high.
  4. 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

 

44)          Which of the following is not included in the distributive politics spreadsheet?

  1. a) costs of organizing for nonmarket action
  2. b) institutional officeholders
  3. c) available substitutes
  4. 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?

  1. a) The supply side information includes available substitutes, the aggregate benefits, and the per capita benefits for individual members of an interest group.
  2. b) Institutions are included in the spreadsheet because they are viewed as arenas in which nonmarket action is likely to be generated.
  3. c) The spreadsheet is intended to summarize rather than substitute for the analysis of the benefits and costs of nonmarket action.
  4. 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 ________.

  1. a) majoritarian
  2. b) interest group
  3. c) client
  4. 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.

  1. a) majoritarian
  2. b) interest group
  3. c) client
  4. d) entrepreneurial

Answer: D

Page reference: 138

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

48)          In client politics, the ________.

  1. a) alternative is favored over the status quo
  2. b) status quo is favored over the alternative
  3. c) benefits are widely distributed
  4. 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?

  1. a) An alternative is to be adopted over the status quo to represent the widely distributed benefits.
  2. b) The beneficiaries face little risk of opposition from the other side.
  3. 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.
  4. 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?

  1. a) An alternative is to be adopted over the status quo to represent the widely distributed benefits.
  2. b) The beneficiaries face little risk of opposition from the other side.
  3. 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.
  4. 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

 

 

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.

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 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

 

Chapter Seven:

Nonmarket Strategies for Government Arenas

 

 

True/False Questions:

 

1)            Strategy formulation in the nonmarket environment is similar to its counterpart in the market environment.

Answer: False

Page reference: 162

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

2)            Nonmarket issues attract a fewer set of participants than those involved in markets.

Answer: False

Page reference: 162

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

3)            In nonmarket competition, society can neither control the nonmarket power exercised by firms nor require the disclosure of nonmarket actions.

Answer: False

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

4)            From a pluralist perspective, public interest is identified by the interests of individuals and groups in the context of political institutions.

Answer: True

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

5)            Firms do not have the right to participate in political processes because of the particular interests they represent.

Answer: False

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

6)            Firms have the right to form and participate in coalitions and associations to conduct nonmarket activity.

Answer: True

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

7)            The nonmarket power of business is controlled because it is naturally divided.

Answer: True

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

8)            The nonmarket activities of business and other interest groups are not monitored.

Answer: False

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

9)            A waste disposal company misrepresents information on ground water toxicity level to the residents near its plant. This is a form of manipulation in business nonmarket activity.

Answer: True

Page reference: 165

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

10)          The formulation of nonmarket strategies is the responsibility of the society intervening in such issues.

Answer: False

Page reference: 166

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

11)          Although nonmarket strategies focus on the initial institutional arena, the subsequent delegation to administrative or regulatory agencies is a public process.

Answer: False

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

12)          In a nonmarket analysis, motivation and the nature of the politics are important factors to the development of effective strategies.

Answer: True

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

13)          A firm injured by unfair foreign competition can file a petition for relief under the U.S. trade law.

Answer: True

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

14)          When there is competition among interests, as in the case of interest group politics, the effectiveness of a strategy is independent of the strategies that others are pursuing on the issue.

Answer: False

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

15)          The nonmarket strategies available to firms are the same as those available to other interest groups but its appropriateness and effectiveness can differ.

Answer: True

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

16)          Cost pressure and information demand are primary nonmarket assets for firms and interest groups for strategy formulation.

Answer: False

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

17)          Constituency connection, campaign contributions, or a reputation for providing reliable information are nonmarket assets.

Answer: True

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

18)          The reputation of a firm and its top management is an important nonmarket asset.

Answer: True

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

19)          When an industry seeks to defeat legislation, a unified position is most effective.

Answer: False

Page reference: 169

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

20)          Rent chain can be mobilized only on issues inside governmental institutions.

Answer: False

Page reference: 170

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

21)          Firms need to develop contingent strategies as nonmarket competition on an issue is limited to a single institutional arena.

Answer: True

Page reference: 170

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

22)          Implementation of nonmarket strategies pertains to the selection of specific actions and the assignment of tasks to organizational units and individual managers.

Answer: False

Page reference: 170

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

23)          Vote recruiting is a majority-building strategy.

Answer: True

Page reference: 174

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

24)          In politically responsive institutions success depends more on the provision of technical information.

Answer: False

Page reference: 180

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

25)          In client politics, firms prefer to adopt a high-profile strategy that includes public advocacy to counter the opposition.

Answer: False

Page reference: 181

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

Multiple Choice Questions:

 

26)          Strategy formulation in the nonmarket environment ________.

  1. a) does not require collective action
  2. b) attracts a broader set of participants than those involved in markets
  3. c) implements important components in private
  4. d) resolves issues through voluntary agreements

Answer: B

Page reference: 162

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

27)          A car manufacturing firm is deliberately neglecting state environmental laws. Which of the following responses from the society is applicable here?

  1. a) society may control the exercise of market power through regulation
  2. b) society may rely on market forces to develop substitute products
  3. c) society cannot require disclosure of nonmarket actions
  4. d) society can rely on countervailing influences from opposing interests to mitigate business nonmarket power

Answer: D

Page reference: 163

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

28)          ________ Amendment protects the right of corporations to make expenditures and participate in political competitions on a state ballot proposition.

  1. a) First
  2. b) Second
  3. c) Tenth
  4. d) Sixteenth

Answer: A

Page reference: 163

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

29)          ________ keep a check on business nonmarket power.

  1. a) Activist groups
  2. b) Management of firms
  3. c) Human resource departments
  4. d) Employees

Answer: A

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

30)          Corporate participation in political activities ________.

  1. a) can give voice to people whose interests might otherwise be unrepresented
  2. b) always leads to over-representation of interests
  3. c) does not advance public interest
  4. d) cannot be aligned with the interests of activist groups

Answer: A

Page reference: 164

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

31)          Collective nonmarket action, such as joint lobbying to influence government ________.

  1. a) violates antitrust laws
  2. b) is considered as manipulation
  3. c) cannot be associated with corporations
  4. d) does not violate antitrust laws

Answer: D

Page reference: 164

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

32)          Which of the following statements is true of nonmarket activities of businesses from the perspective of the public?

  1. a) Businesses misrepresent information that play on ignorance and biases.
  2. b) Businesses do not have too much power to make a change in the society.
  3. c) Businesses do not exploit institutional features.
  4. d) Business goals are always congruent with public interests.

Answer: A

Page reference: 165

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

33)          In terms of business nonmarket action, ________ can take two basic forms: one involves misrepresentation and the other involves exploiting institutional features.

  1. a) nonmarket analysis
  2. b) lobbying
  3. c) manipulation
  4. d) strategy formulation

Answer: C

Page reference: 165

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

34)          The responsibility for formulating nonmarket strategies ultimately rests with ________.

  1. a) taxpayers
  2. b) management
  3. c) public institutions
  4. d) interest groups

Answer: B

Page reference: 166

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

35)          The approach to nonmarket strategy formulation ________.

  1. a) requires the delegation of administrative responsibility to an agency or a regulatory commission
  2. b) addresses nonmarket issues of a firm directly in public institutions
  3. c) does not require nonmarket strategies to focus on initial institutional arena as there is no competition between different interests of a firm
  4. d) resolves nonmarket issues by voluntary agreements and thus, does not need strategy formulation

Answer: A

Page reference: 166

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

36)          Nonmarket analysis involves ________.

  1. a) assessing the industry cost structure
  2. b) analyzing the financial statements of the firm
  3. c) identifying distribution channels
  4. d) assessing institutional characteristics

Answer: D

Page reference: 167

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

37)          Nonmarket strategies are the link between ________.

  1. a) institutions and institutional officeholders
  2. b) objectives and the specific actions taken to achieve them
  3. c) motivations and incentives of an issue
  4. d) the demand for and supply of nonmarket action

Answer: B

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

38)          Which of the following statements is applicable to the approach to nonmarket strategy formulation in interest group politics?

  1. a) Strategies should increase the benefits to those with aligned interests and reduce their costs of taking nonmarket action.
  2. b) Strategies should increase the opposing side’s incentives to take nonmarket action.
  3. c) It is a linear process and does not involve taking into account other interests.
  4. d) Nonmarket strategies for firms are often more wider than the set of strategies used by other interests.

Answer: A

Page reference: 168

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

39)          Which of the following reflects a firm’s nonmarket assets?

  1. a) switching costs
  2. b) customer loyalty
  3. c) reputation of the top management
  4. d) investment in mutual funds

Answer: C

Page reference: 168

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

40)          The underlying principle of the rent chain is that ________.

  1. a) the greater the rents affected by a nonmarket issue, the lower are the incentives to take nonmarket action to obtain or protect those rents
  2. b) the lower the rents affected by a nonmarket issue, the greater are the incentives to take nonmarket action to obtain or protect those rents
  3. c) the rents affected by a nonmarket issue are independent of the incentives to take nonmarket action to obtain those rents
  4. d) the greater the rents affected by a nonmarket issue, the greater are the incentives to take nonmarket action to obtain or protect those rents

Answer: D

Page reference: 169

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

 

41)          A rent chain ________.

  1. a) does not help generate nonmarket action through constituency connection.
  2. b) gives a firm the right or the opportunity to participate in public processes.
  3. c) can be mobilized only on issues in the government institutions.
  4. d) does not include stakeholders irrespective of whether they benefit from their interactions with the firm.

Answer: B

Page reference: 170

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

42)          Which of the following is applicable to the implementation of nonmarket strategies?

  1. a) hiring a firm to assess industry cost structure
  2. b) assigning employees to analyze the financial statements of the firm
  3. c) hiring candidates to handle a new project
  4. d) designating a manager to engage in lobbying

Answer: D

Page reference: 170

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

43)          Which of the following represents strategy formulation in a nonmarket issue?

  1. a) A firm hires a law firm to provide advice on energy subsidies and emission taxes.
  2. b) A firm designates a manager to engage in lobbying for energy subsidies in Washington.
  3. c) A firm identifies that the energy subsidy and emission tax issue will be pursued with the state government and then at the national level.
  4. d) A firm forms an ad hoc coalition with S. companies that require energy subsidies.

Answer: C

Page reference: 170

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

44)          Which of the following represents strategy implementation in a nonmarket issue for a tire manufacturer?

  1. a) It hires a law firm to provide advice on emission taxes and subsidies on industrial waste disposal.
  2. b) It analyzes and concludes that other manufacturing companies have similar interests.
  3. c) It decides to obtain access to members of the Congress by hiring former government officials for lobbying.
  4. d) It identifies that petitions can be filed under the sections of S. manufacturing laws.

Answer: A

Page reference: 170

Difficulty: Difficult

AACSB: Analytic skills

Learning Outcome: Describe the components of the management environment

 

45)          Generic nonmarket representation strategies are based on ________.

  1. a) developing the needed votes in a legislature to enact or defeat a bill
  2. b) the consequences of alternatives for constituents of government officeholders
  3. c) providing information to government officeholders
  4. d) analyzing industrial costs structures

Answer: B

Page reference: 172

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

46)          Which of the following is applicable to agenda-setting in nonmarket strategies?

  1. a) It focuses first on recruiting the agenda setter and then on building support for the alternative on the agenda.
  2. b) It is suitable for a relatively open legislative process that does not require vote recruiting.
  3. c) It focuses first on building support for the alternative on the agenda and then on recruiting an agenda setter.
  4. d) It is most effective in interest group politics.

Answer: A

Page reference: 177

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

47)          Which of the following is a necessary condition for an informational strategy to be effective?

  1. a) favorable information must be provided to the legislator
  2. b) government officeholders are more informed than the interest group
  3. c) interest group is more informed about the issue than are the government officeholders
  4. d) the public holds superior information about an issue than the interest group.

Answer: B

Page reference: 178

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

48)          Strategies involving the provision of political information are ________.

  1. a) not used for regulatory and administrative agencies
  2. b) independent of the political responsiveness of institutions
  3. c) are associated with less politically responsive institutions
  4. d) often used in conjunction with representation strategies

Answer: D

Page reference: 178

Difficulty: Easy

AACSB:

Learning Outcome: Describe the components of the management environment

 

49)          In public politics, nonmarket strategies are ultimately directed at ________.

  1. a) government officeholders
  2. b) customers
  3. c) stakeholders
  4. d) interest groups

Answer: A

Page reference: 179

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

50)          Low-profile nonmarket strategies are most suitable for ________.

  1. a) interest group
  2. b) majoritarian politics
  3. c) client politics
  4. d) entrepreneurial politics

Answer: C

Page reference: 182

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

Essay and Review Questions:

 

51)          Highlight the differences between strategy formulation in the nonmarket environment and in the market environment.

Answer: Strategy formulation in the nonmarket environment differs in a number of ways from its counterpart in the market environment. First, nonmarket issues attract a broader set of participants than those involved in markets. Second, important components of nonmarket strategies are implemented in public view, which requires sensitivity to the concerns of that broader set of participants. Third, the logic of collective and individual nonmarket action is different from the logic of market action. Fourth, in the nonmarket environment issues are not resolved by voluntary agreements as in markets but in most cases by government institutions with the power to set and enforce the rules of the game. In their strategy formulation and implementation, companies and other interests must ensure that their strategies are not only effective but also responsible. In the framework for the analysis of nonmarket issues, nonmarket strategies must be evaluated for responsibility in both the screening and the choice stages.

Page reference: 162

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

52)          Nonmarket activities of business support political alternatives that may be contrary to public interest. Discuss.

Answer: The nonmarket activities of businesses are subject to considerable criticism. A firm must exercise judgment, and at times restraint, to ensure that nonmarket strategies are responsible and do not exceed the limits of public acceptability.

One such criticism of nonmarket action by business is that it can be contrary to the public interest. What is in the public interest, however, is often the subject of fundamental disagreement. For example, the antidumping laws that impose duties on imported goods sold at lower prices than in the exporting country are viewed by economists as harmful to consumers and the economy. Yet, antidumping laws have been in place for over 80 years in the United States, have been adopted by most countries, and are allowed by the World Trade Organization agreements. Firms, labor unions, interest groups, and governments use the antidumping laws against foreign imports, even though that may be contrary to some conceptions of the public interest. From a pluralist perspective, the public interest is identified by the interests of individuals and groups in the context of political institutions. The public interest thus can be advanced by business participation, since the interests of firms are ultimately the interests of those who have a stake in their performance, including shareholders, employees, retirees, customers, suppliers, and the communities in which they operate.

The Supreme Court has ruled that collective nonmarket action, such as joint lobbying to influence government, does not violate antitrust laws against collusion because the First Amendment grants the right to petition government. Firms thus have the right to form and participate in coalitions and associations to conduct nonmarket activity.

Page reference: 163

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment

 

53)          What are the two basic forms of manipulation in business nonmarket activity?

Answer: Manipulation can take two basic forms. One involves misrepresentation or activities that play on ignorance, fear, or biases. The second form involves exploiting institutional features. Nonmarket strategies with these characteristics must be evaluated in the screening stage, while misrepresentation should be rejected, exploiting institutional features should be still be responsible.

Page reference: 163

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

54)          What are the components of nonmarket analysis?

Answer: Nonmarket analysis forms the basis for effective strategies. Nonmarket analysis includes the following components:

  • Assessing the characteristics of the issue and where it is in its life cycle
  • Identifying the interests affected by the issue
  • Assessing motivations and incentives
  • Analyzing the likely demand for and supply of nonmarket action
  • Assessing the nature of the politics of the issue
  • Identifying the institutional arenas in which the issue will be addressed
  • Assessing institutional characteristics
  • Identifying the relevant institutional officeholders and their constituent and policy interests

Page reference: 167

Difficulty: Moderate

AACSB:

Learning Outcome: Describe the components of the management environment

 

55)          Informational strategy is a key component of lobbying. Discuss.

Answer: The strategic provision of information is the principal component of lobbying, testimony in legislative or regulatory proceedings, and public advocacy. Information enables officeholders to better serve their constituents and pursue their policy interests. Interest groups thus employ informational strategies in an attempt to influence outcomes. Informational strategies typically involve providing information favorable to the firm or interest group. To implement an informational strategy through lobbying, an interest group may invest in obtaining access to legislators or administrative officials. Influence thus often has two stages. The first involves obtaining access, and the second involves the strategic provision of information. In public processes such as those of many regulatory agencies, interests have due process rights to participate in the process and provide information. In legislative institutions, however, access to a pivotal legislator is not guaranteed and may have to be developed. A firm s rent chain can provide access through the constituency connection.

Lobbying involves the strategic provision of two types of information—technical and political. Technical information pertains to the likely consequences of alternatives. Political information pertains to the effects of alternatives on the constituents of officeholders. Political information is often provided in conjunction with representation and majority building strategies. Both technical and political information may be provided strategically—advocating the outcome sought by the interest. This may involve the strategic advocacy of a position, the choice of methodologies that generate data and conclusions favorable to an interest, or the emphasis on favorable, and de-emphasis on unfavorable, information. Some informational strategies are counteractive— that is, they are undertaken to counter the information provided by an opposing interest.

Page reference: 178

Difficulty: Difficult

AACSB:

Learning Outcome: Describe the components of the management environment