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

Question

5. The role of brand names and advertising Which of the following statements about expenditures on advertising is true? 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. When a firm spends a small amount of money on advertising, this signals that the quality of the good is high Read the following example and determine whether it illustrates a common critique or defense of advertising Lorenzo 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

Question 1. Option 2: When a firm spends a large amount of money on advertising, advertising can be construed as a signal of quality.

Explanation: When the quality of the products is high, the firm is ready to put a large amount of money at stake. Therefore, the firm is willing to spend the high amount on advertising. In such a case, high advertisement expenses act as a signal of quality.

Question 2: A common critique

Explanation: Advertising is often criticised for promoting consumerism i.e. excessive purchases without need. Here, this is an example of consumerism promoted by advertising.

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