Module No.3: Advertising and the theory of the firm a) Using economic analysis and real world examples, explain why a firm may advertise its product. Advertising has been defined as "any paid form of non-personal presentation and promotion of ideas, goods and services through mass media such as newspapers, magazines, television or radio by an identified sponsor." (http://www.tutor2u.net) Why do firms advertise? The most general answer is that firms advertise because …showed first 75 words of 1521 total…

…showed last 75 words of 1521 total…its own policies, but also those of its rivals. The firm's products are close substitutes, which is why there is a high and positive cross elasticity of demand. Therefore the firms use lots of advertising to get consumers to buy their products instead of the products of a competitor. That can be seen in the example of the supermarkets, outlined above. Sources used: John Sloman, Essential Economics,2001 www.tutor.net www.parliament.the-tationeryoffice.co.uk