4. The role of brand names and advertising Which of the following statements abo

Question

4. The role of brand names and advertising Which of the following statements about expenditures on advertising is true? When a firm spends a small amount of money on advertising, this signals that the quality of the good is high If a firm knows its product is of low quality, it will be willing to spend large amounts of money on advertising. When a firm spends a large amount of money on advertising, advertising can be construed as a signal of quality. Read the following example and determine whether it illustrates a common critique or defense of advertising. Brian sees a commercial for a Brand X clothing company that depicts the wearers of the clothes out having a good time with friends. Although he doesn't particularly need new clothes, the commercial prompts him to buy a Brand X t-shirt. This illustrates a common of advertising.

Explanation / Answer

Ans: When a firm spends a large amount of money on advertising, advertising can be used as a signal of quality.

Explanation:

The willingness of a firm to spend a large amount of money on advertising may be a signal for consumers about the quality of the product being offered by the company.

Ans: Defense

Explanation:

It is based in the characteristics of advertisment that the advertisement is used to provide information to customers.

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