4. The role of brand names and advertising

Which of the following statements about expenditures onadvertising is true?

1.

If a firm knows its product is of low quality, it will bewilling to spend large amounts of money on advertising.

2.

When a firm spends a small amount of money on advertising, thissignals that the quality of the good is high.

3.

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 itillustrates a common critique or defense ofadvertising.

Kevin sees a commercial for a Brand X clothing company thatdepicts the wearers of the clothes out having a good time withfriends. Although he doesn't particularly need new clothes, thecommercial prompts him to buy a Brand X t-shirt.

FILL IN THE BLANKS

This illustrates a common..........(Crtique orDefense) of advertising.