Question 1

Edward Chamberlin argued that brand names

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The answer of Edward Chamberlin argued that brand names
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Question 2

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

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

Question 3

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

Accepted Answer

By being willing to spend money on advertising, firms signal to consumers that they have confidence in the product's quality. Firms would not likely spend money on advertising a poor product, as it would be a waste of their resources. This is known as the signaling effect of advertising.

Question 4

Advertising that uses celebrity endorsements is most likely intended to

Accepted Answer

Celebrity endorsements provide a signal of product quality to consumers. Seeing a celebrity using or endorsing a product can make consumers believe that the product is of higher quality and therefore more desirable. This can lead to increased demand and higher prices.

Question 5

According to the signaling theory of advertising, consumers

Accepted Answer

The signaling theory of advertising suggests that consumers view a firm's willingness to spend money on advertising as a signal of the company's strength and confidence in its products. In other words, consumers are often more impressed by a firm's willingness to spend money on advertising than they are by the content of the advertisement itself.

Question 6

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, only firms that produce high-quality products have incentives to spend a large amount of money on advertising. Therefore, AllClean, which produces effective laundry detergent, has an incentive to spend a lot on advertising. On the other hand, NotQuiteWhite, which produces an ineffective product, does not have an incentive to spend a lot on advertising because it would not generate any positive reputation or increase in sales.

Question 7

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

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

Question 8

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

According to the signaling theory of advertising, companies with high quality products have an incentive to spend more on advertising in order to signal their quality to consumers. Therefore, Adibok has an incentive to spend a large amount of money on advertising for its athletic shoes. On the other hand, companies with low quality products have no incentive to spend more on advertising because this will not change consumers' perceptions of their product. Therefore, Wurkout does not have an incentive to spend a large amount of money on advertising for its athletic shoes.

Question 9

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

Benham found that the average price paid for eyeglasses was nearly 20% lower in the states that did not restrict advertising. This suggests that advertising competition led to lower prices for consumers in the eyeglasses market.

Question 10

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

Accepted Answer

Critics argue that brand names can lead consumers to pay more for products that are essentially the same as their generic counterparts, implying that the premium price is for the brand rather than any substantive difference in quality or features.

Question 11

One theory of advertising suggests that

Accepted Answer

This theory, known as the "minimal effects" theory, suggests that the content of advertising may have little to no impact on product success in the market. This theory suggests that other factors, such as brand recognition and word-of-mouth recommendations, may be more important for consumer decision-making.

Question 12

Most businesses advertise their products and services. Some business use SPAM emails to advertise because the cost of a mass e-mail is close to zero. Other business spend millions of dollars to advertise in a 30-second spot during the Super Bowl. Having observed this real world data, economists argue that the amount of money that a business spends on advertising is a proxy for a good or service's

Accepted Answer

The amount of money a business spends on advertising is a reflection of their belief in the quality of their product or service. Businesses with high-quality products or services are willing to invest more in advertising in order to attract and retain customers.

Question 13

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 perception that wearing LGBP clothing is associated with being beautiful, popular, and having fun, which may make demand for the brand less elastic. However, there is no evidence to suggest that this advertisement is more effective than other forms of advertising, so option B is incorrect. There is also no reason to suggest that this advertisement will cause the market to be more competitive, so option C is also incorrect. Therefore, option A is the best choice.

Question 14

Advertisements that appear to convey no information at all

Accepted Answer

Advertisements that appear to convey no information may still serve a purpose by signaling to consumers that a firm is willing to invest in advertising, which in turn may signal that the product or brand is of high quality or reputable. This is known as the "signaling theory" of advertising.

Question 15

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

Accepted Answer

Advertising expenditures can send a signal of product quality to consumers. It indicates that the firm has invested a significant amount of money in promoting the product, which could suggest that it is of high quality. The other options are not necessarily the primary purpose of advertising expenditures.

Question 16

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

Accepted Answer

The study in the 1960s found that removing legal restrictions on advertising by optometrists would lead to a decrease in the average price of eyeglasses, indicating that advertising restrictions were limiting price competition in the market. Choices A, B, and D are not supported by the information given in the question.

Question 17

A firm can signal the high quality of its product by

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

Question 18

The debate over the efficiency of markets in which products with brand names are sold

Accepted Answer

The debate over the efficiency of markets in which products with brand names are sold hinges on whether consumers are rational in their choices. This is because if consumers are rational, they will make purchasing decisions based on objective factors such as price and quality, rather than being swayed by brand names and advertising. However, if consumers are not rational and are influenced by brand names and advertising, then markets with branded products may be less efficient. The role of regulation in advertising and effectiveness of advertising that identifies price differences are related to this debate but are not the main factors that determine the efficiency of markets with branded products. Anecdotal evidence may be used to support or contradict arguments but is not a reliable way to resolve this debate.

Question 19

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

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Question 20

Edward Chamberlin argued that governments should

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The answer of Edward Chamberlin argued that governments should
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Quiz 16: Monopolistic Competition