AllClean Knows That It Produces and Sells Very Effective Laundry

question 64

Multiple Choice

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.

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Definitions:

Income Elasticity

A measure of how the demand for a good or service changes in response to changes in consumer income, indicating whether a good is a necessity or a luxury.

Purchase of Toys

Refers to the consumer action of buying toys, which involves the transaction and the amount spent on toys in a specific period.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, inversely related to the economic well-being of consumers.

College Tuition

The fee that students pay to attend a college or university, covering costs such as instruction, facilities, and sometimes room and board.