UpStudy Free Solution:

Critics of advertising often argue that in some markets, advertising can have various negative effects. Let's evaluate each of the given options:

a. Decrease elasticity of demand allowing firms to charge a larger markup over marginal cost.

- This is a valid criticism. Advertising can create brand loyalty and perceived product differentiation, which can reduce the price sensitivity (elasticity) of consumers. When demand is less elastic, firms can charge higher prices above their marginal costs.

b. Attract less informed buyers into the market.

- This is another valid criticism. Advertising can sometimes be misleading or provide incomplete information, which may attract less informed buyers who make purchasing decisions based on the advertising rather than on a thorough understanding of the product.

c. Enhance competition in markets to an unnecessary degree.

- This is generally not a common criticism. While advertising can increase competition by making consumers more aware of different products, critics usually argue that it reduces competition by creating brand loyalty and barriers to entry for new firms.

d. Attract products of lower quality into the market.

- This can also be a valid criticism. Heavy advertising can sometimes lead to the promotion of lower-quality products that rely more on their marketing than on their actual quality. Consumers may be misled into buying these products based on the advertising rather than on the product's merits.

Among these options, the most commonly cited criticism of advertising in economic literature is:

a. Decrease elasticity of demand allowing firms to charge a larger markup over marginal cost.

Supplemental Knowledge:

Advertising plays a significant role in shaping market dynamics and consumer behavior. While it can provide valuable information to consumers and enhance competition, critics argue that it can also have negative effects:

1. Decreased Elasticity of Demand: Advertising can create brand loyalty or perceived product differentiation, which reduces the price sensitivity (elasticity) of consumers. When demand becomes less elastic, firms gain more pricing power and can charge higher markups over marginal costs.

2. Attracting Less Informed Buyers: Advertising often emphasizes emotional appeal or superficial attributes rather than substantive information about the product. This can attract buyers who are less informed about the actual quality or value of the product, potentially leading to suboptimal purchasing decisions.

3. Enhancing Competition Unnecessarily: In some cases, excessive advertising might lead to an arms race where firms spend heavily on marketing rather than improving their products or reducing prices. This could result in higher overall costs without corresponding benefits to consumers.

4. Attracting Lower Quality Products: If advertising is highly effective at driving sales regardless of product quality, it might incentivize the entry of lower-quality products into the market. Firms may focus more on marketing than on maintaining high standards for their offerings.

Join millions of learners who rely on UpStudy as they embark upon their educational journeys - every challenge presented becomes a chance for growth!