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 large amount of money on advertising, advertising can be construed as a signal of quality. O 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 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 defence of advertising. Kenji 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

Correct statement:

- When a firm spends a large amount of money on advertising, advertising can be construed as a signal of quality.

The example illustrates a common critique of advertising. (sub-conscious influencing, increased consumption and waste)

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