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Briefly describe the supply-and-demand framework that is used to assess the amount or quantity of nonmarket action.
Business and Its Environment
Edition: 7th
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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.
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