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,
a. both AllClean and NotQuiteWhite have incentives to spend large amounts of money on advertising their products.
b. AllClean has an incentive to spend a large amount of money on advertising its detergent, but NotQuiteWhite does not.
c. NotQuiteWhite has an incentive to spend a large amount of money on advertising its detergent, but AllClean does not.
d. neither AllClean nor NotQuiteWhite has an incentive to spend a large amount of money on advertising their detergents.
b
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Neoclassical growth theory attributes economic growth to
A) technological change. B) fiscal policy. C) the law of diminishing returns. D) increasing population growth.
Suppose that medical researchers discover a new drug which slows the aging process, allowing the average life span in the United States to increase to 95 years of age. The permanent-income hypothesis suggests that
A) consumption spending would increase since lifetime income increases. B) consumption spending would increase since estimates of permanent income would increase. C) consumption spending would decrease since savings would rise to provide income for the longer retirement periods. D) None of the above is correct since predicted future annual incomes may not change.
According to the textbook, if a wave of pessimism cause stocks to become generally overvalued, the best investment strategy is to
A. sell as many stocks as possible. B. continue to diversify your investment portfolio. C. buy only government bonds. D. hold all available stocks and sell them later.
A recession is characterized by:
A. constant unemployment. B. an increase in the general price level. C. a period of significant increase in economic activity. D. falling GDP.