Question 1

A law that restricts the ability of hotels/motels to advertise on billboards outside a resort community would likely lead to:

Accepted Answer

Restricting the ability of hotels/motels to advertise on billboards outside a resort community would reduce their visibility and therefore, their ability to compete effectively. This could reduce the efficiency of local lodging markets. It is unlikely to lead to a request by consumers to increase the number of billboards, as consumers generally dislike the visual clutter of billboards. It may or may not lead to a decrease in profits for all hotels/motels, depending on the extent to which billboard advertising is currently contributing to their profitability, and whether they are able to find alternative, equally effective forms of advertising.

Question 2

The debate over whether society is wasting the resources it devotes to advertising has largely been resolved by which of the following groups?
(i) economists who study the tastes and preferences of individuals
(ii) psychologists who evaluate the manipulative effects of advertising
(iii) sociologists who document the destructive social forces inherent in advertising

Accepted Answer

The debate over the resources devoted to advertising involves complex and ongoing discussions among various disciplines, including economics, psychology, and sociology, without a clear resolution by any single group.

Question 3

Critics of vacation advertisements that depict 'beautiful' human bodies on sun-drenched beaches as the primary focus of the message are likely to claim that the purpose of the advertisement is to:

Accepted Answer

The answer of Critics of vacation advertisements that depict 'beautiful'...

Question 4

Defenders of advertising would argue that advertising conveys information about which of the following?
(i) the prices of goods offered for sale
(ii) the existence of new products
(iii) the location of retail outlets

Accepted Answer

Defenders of advertising argue that it conveys information about prices of goods offered for sale, the existence of new products, and the location of retail outlets, making option D the correct choice.

Question 5

The primary claim of defenders of advertising is that:

Accepted Answer

The primary claim of defenders of advertising is that it enhances the information available to consumers by providing information about the features, benefits, and prices of different products available in the market. While advertising may also have a psychological impact on consumers, this is not typically the primary purpose of advertising. The claim that advertising conveys information about firm profitability is also not necessarily true - while advertising may convey information about a company's offerings and brand image, it does not necessarily provide information about its profitability.

Question 6

Advertising as a signal of quality is an example of:

Accepted Answer

Advertising can be seen as a way for firms to communicate their message and signal their quality to consumers. By investing in advertising, a firm is signaling that they are willing to invest in their product, which can be interpreted as an indicator of quality. This is a profit-maximizing behavior as it can lead to increased sales and market share.

Question 7

In markets where restrictions on advertising have been used to curtail competition, the US courts have generally:

Accepted Answer

The US courts have generally overturned laws that prohibit advertising in markets where the restrictions on advertising have been used to curtail competition.

Question 8

Advertisements that appear to convey no information at all:

Accepted Answer

Advertisements that appear to convey no information can still be valuable to companies as they may have been expensive to produce and can serve to increase brand awareness and maintain a company's presence in the market.

Question 9

In relation to the branding of products, which of the following statement(s) are correct?
(i) brand names can cause consumers to perceive differences in products that do not really exist
(i) brand names can be a useful way for consumers to ensure the product they are buying is of high quality
(i) brand names give firms an incentive to maintain a high product quality

Accepted Answer

The answer of In relation to the branding of products,...

Question 10

Movies that prominently display name-brand consumer products are most likely sending a message about:

Accepted Answer

The answer of Movies that prominently display name-brand consumer products...

Question 11

Which of the following is correct.Advertising can be used by firms to:
(i) try and convince consumers that products are more differentiated than they really are
(ii) create desires in consumers that would otherwise not exist
(iii) signal to consumers the quality of the product being offered

Accepted Answer

Advertising can be used by firms for multiple purposes: (i) to exaggerate differences between products, making them appear more unique than they might actually be; (ii) to generate new desires in consumers for products or services they previously did not consider or know about; and (iii) to signal product quality, where high advertising spending can be perceived as an indication of a company's confidence in its product.

Question 12

According to the information provided, advertising of computer hardware on billboards will most likely:

Accepted Answer

The answer of According to the information provided, advertising of...

Question 13

Critics of markets that are characterised by firms that sell brand-name products argue that brand names encourage consumers to pay more for branded products that:

Accepted Answer

The argument is that brand names encourage consumers to pay more for products that are indistinguishable from generic products. This suggests that the products are not very different, and thus consumers are essentially paying for the brand name and not for any real difference in quality or performance.

Question 14

If a firm in a monopolistically competitive market uses advertising to decrease elasticity of demand for its product:

Accepted Answer

By decreasing the elasticity of demand for its product through advertising, the firm can differentiate its product and make it appear more unique or desirable, allowing it to increase its mark-up over marginal cost. This is because consumers are willing to pay a higher price for a product that they perceive as different or better than the alternatives.

Question 15

Refer to the information provided.Consumer advocacy groups that have encouraged the Premier to restrict advertising of computer hardware on billboards are most likely to do so on the basis that advertising:

Accepted Answer

Consumer advocacy groups are most likely to seek the restriction of computer hardware ads on billboards on the basis that these ads manipulate people's tastes.

Question 16

In differentiated product markets that are characterised by advertising, evidence suggests that which of the following statements are true?
(i) markets are less efficient
(ii) consumers make better choices
(iii) in general, firms are less profitable

Accepted Answer

Advertising in differentiated product markets can lead to consumers making better choices by providing them with more information about the products available. This can enhance market efficiency and potentially increase firm profitability by expanding the market and allowing firms to better segment their customers.

Question 17

If advertising reduces a consumer's price sensitivity between identical goods, it is likely to:

Accepted Answer

When advertising reduces a consumer's price sensitivity, it can lead to a situation where consumers are less likely to switch between products based on price differences. This can reduce the competitive pressure on firms to lower prices, potentially leading to higher prices and reduced consumer surplus, thereby impeding competition and reducing social wellbeing.

Question 18

Brand names are associated with which of the following arguments?
(i) brand names provide information about quality, when quality cannot be easily judged
(ii) firms that promote brand names have strong incentives to monitor product quality
(iii) firms that promote brand names face an elastic demand for their product

Accepted Answer

Brand names are associated with both (i) and (ii) arguments. Brand names can provide information about quality, particularly when quality cannot be easily judged by the consumer. Firms that promote brand names have strong incentives to monitor product quality to protect their brand name reputation. However, there is no clear link between brand names and elasticity of demand, so (iii) is not a commonly associated argument with brand names.

Question 19

According to the information provided, as a result of this new advertising strategy, economists would be likely to predict that the Computer Hardware Manufacturers Association will:

Accepted Answer

The answer of According to the information provided, as a...

Question 20

A recent outbreak of hepatitis was linked to a national fast-food restaurant chain.This is an example where:

Accepted Answer

The fact that the outbreak was linked to a national fast-food restaurant chain shows that in this case, the brand name identity was detrimental to the profitability of the firm. This event negatively impacted customers' perceptions of the brand, which can lead to lost revenue and damage to the company's reputation.

Quiz 16: Monopolistic Competition