Question 1

AllClean knows that it produces and sells very effective laundry detergent. NotQuiteWhite knows that it produces and sells ineffective laundry detergent. According to the signaling theory of advertising,

Accepted Answer

According to the signaling theory of advertising, companies with high-quality products have an incentive to advertise their products heavily in order to signal their quality to consumers. In contrast, companies with low-quality products have less of an incentive to spend money on advertising, as it may not be effective in convincing consumers to purchase their product. Therefore, AllClean has an incentive to spend a large amount of money on advertising its effective detergent, but NotQuiteWhite does not have the same incentive as it produces ineffective detergent.

Question 2

Results of the study done by Lee Benham on advertising for eyeglasses would suggest that

Accepted Answer

The answer of Results of the study done by Lee...

Question 3

Advertisements that appear to convey no information at all

Accepted Answer

Advertisements that appear to convey no information may actually convey information to consumers by signaling that firms are willing to spend significant amounts of money on advertising. This can indicate to consumers that the product being advertised is of high quality, as the firm is confident enough in its product to spend money on advertising alone.

Question 4

The LookGood BePopular (LGBP) Clothing Company embarked on a new advertising campaign in which a group of young beautiful people are having fun eating out at a restaurant wearing the company's clothes. Critics of advertising argue that this advertisement

Accepted Answer

The advertisement may create a sense of social pressure or desire to conform to the image portrayed in the ad, which could make demand for LGBP Clothing less elastic. The answer choice B is not necessarily true as the effectiveness of an advertisement can vary depending on many factors beyond its content. The answer choice C is not supported by the information provided.

Question 5

According to one theory, advertising sends a signal to consumers about the quality of the product being offered. An implication of this theory is that

Accepted Answer

The answer of According to one theory, advertising sends a...

Question 6

A firm can signal the high quality of its product by

Accepted Answer

The answer of A firm can signal the high quality...

Question 7

A study of the market for optometrists' services in the 1960s showed that

Accepted Answer

The study found that removing legal restrictions on advertising by optometrists would lead to a decrease in the average price of eyeglasses. This suggests that the current restrictions limit competition and keep prices artificially high. The other options are not supported by the information given in the passage.

Question 8

In the study done by Lee Benham on advertising for eyeglasses,

Accepted Answer

The answer of In the study done by Lee Benham...

Question 9

According to the signaling theory of advertising, consumers

Accepted Answer

The signaling theory of advertising suggests that consumers are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement. This is because advertising can serve as a signal of a firm's quality and credibility, and consumers may assume that a firm that spends more on advertising is more successful and therefore more likely to offer higher quality products or services.

Question 10

In Lee Benham's 1972 article examining the impact of advertising on the average price paid for a pair of eyeglasses, Benham found that

Accepted Answer

In Lee Benham's 1972 article, it was found that the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising, indicating that advertising played a role in reducing the cost of eyeglasses.

Question 11

Professional organizations and producer groups have an incentive to

Accepted Answer

Professional organizations and producer groups often have a desire to limit competition on the basis of price in order to maintain higher profit margins. By restricting advertising, they can limit the ability of new competitors to attract customers through aggressive marketing campaigns, thus reducing competition on the basis of price.

Question 12

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

Accepted Answer

Restricting the ability of hotels/motels to advertise on billboards outside of a resort community would reduce their ability to compete for customers in the wider market. This could result in reduced efficiency of local lodging markets, as potential visitors may not be aware of all available options. It would not necessarily lead to no change in profits, nor would it necessarily prompt consumers to request more billboards. It could potentially lead to increased price competition among hotels/motels in the community, but this is not a guaranteed outcome.

Question 13

Television advertisements aired during major sporting events are very expensive. A theory asserting that people buy a product simply because it is advertised would suggest that information on the high cost of advertising

Accepted Answer

The answer of Television advertisements aired during major sporting events...

Question 14

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with

Accepted Answer

Firms that spend a large amount of money on advertising a particular product are likely to be providing consumers with a signal of product quality. This is because the firm is willing to invest a significant amount of money in promoting the product, which suggests that they have confidence in the quality of the product. Advertising can also create a positive image and reputation for the product and the company, which can further enhance perceptions of quality.

Question 15

Advertising that uses celebrity endorsements is most likely intended to

Accepted Answer

Celebrity endorsements are often used as a signal of product quality, as consumers may assume that if a celebrity is willing to associate themselves with a product, it must be a superior or desirable item. This can lead to increased demand for the product and potentially higher prices, as consumers are willing to pay more for perceived quality.

Question 16

Among arguments for and against advertising, both sides agree that advertising leads to

Accepted Answer

While arguments for and against advertising exist, there is no consensus on whether advertising leads to higher or lower prices or more or less competitive markets. Therefore, none of the options provided accurately captures the effect of advertising on prices and competition.

Question 17

Adibok knows that it produces and sells high quality athletic shoes. Wurkout knows that it produces and sells low quality athletic shoes. According to the signaling theory of advertising,

Accepted Answer

The signaling theory of advertising suggests that advertising can be used to signal quality to consumers. Adibok, which produces high quality athletic shoes, has an incentive to spend a large amount of money on advertising to signal its quality to potential customers. Meanwhile, Wurkout, which produces low quality athletic shoes, does not have an incentive to spend a large amount of money on advertising because it would be unlikely to convince consumers that its shoes are high quality. Therefore, option B is correct.

Question 18

Evidence from the market for eyeglasses suggests that advertising leads to

Accepted Answer

The answer of Evidence from the market for eyeglasses suggests...

Question 19

How does advertising signal to consumers that the product is a good one?

Accepted Answer

When a firm is willing to spend money on advertising, it signals to consumers that they have confidence in the product's quality. It is unlikely that a firm would invest money and time into advertising a product that does not meet their standards. This subconscious association can make consumers believe that the advertised product is a good one.

Question 20

One theory of advertising suggests that

Accepted Answer

This theory suggests that the content of advertising may not necessarily determine the success of a product in the market. Other factors such as price and product quality may be more important.

Quiz 16: Monopolistic Competition