Advertising is an invasive aspect of modern society. It is hard to look around without coming across advertising. In a way, advertising leads to deadweight welfare loss. The money spent on advertising goods does not increase their quality, nor does it increase the number of goods and services in the economy. However, it does cost a lot leading to higher prices for consumers.
A rational consumer could say. ‘The more a company spends on advertising the more expensive it will be, therefore, heavily advertised goods must offer the worst value’
However, most consumers do not think like this. They think, if the firm can afford to spend a lot on advertising it must be good. Therefore, they trust the good to offer a minimum standard of service.
Nevertheless, it is said advertising does create some benefits. In particular, it helps to improve the information for consumers.
