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 …
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…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