Explain how advertising can act as a signal.
What will be an ideal response?
Advertising can act as a signal that the firm plans to stay in business for a long time and it is not a fly-by-night operation. Advertising can entail significant expenses, so by engaging in costly advertising the firm indicates that it plans to remain in business and aims to count on repeat business to recoup the costs. Of course, in this process the firm also seeks to differentiate its product from the products of other firms.
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Which of the following is true?
A. The completion of the transcontinental railroad system in the 1880s eventually made the United States the world's first mass market. B. Southern manufacturers were hurt by the high protective tariffs of the 19th century that kept out cheaper British manufactured goods. C. Agricultural inventions such as John Deere's steel plows greatly improved farm productivity. D. All of the choices are true.
If income were distributed equally our economic _________ would suffer.
Fill in the blank(s) with the appropriate word(s).
If the price elasticity of demand is -0.8 and the firm decreases price, revenue will
a. Increase b. Decrease c. Stay constant d. become zero, they would lose all their customers
When attempting to explain why a consumer purchases a Ford automobile instead of a Honda automobile, or a Compaq computer instead of an IBM computer, an economist would assert:
a. that the consumer is making a decision based on what gives him maximum utility. b. that everyone knows Hondas are superior to Fords; the consumer cannot possibly be maximizing his utility. c. that everyone knows IBM computers are superior to Compaq computers; the consumer may be maximizing his utility at the margin, but is not maximizing total utility. d. that there is no standard explanation for consumer choices because consumers have varied tastes and preferences. e. that since rationality is bounded by lack of information, a consumer purchases goods based on convenience rather than on utility maximization.