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How Advertisement Functions as a Signal to a Potential Buyer

In each of the following cases, explain how the advertisement functions as a signal to a potential buyer. Explain what information the buyer lacks that is being supplied by the advertisement and how the information supplied by the advertisement is likely to affect the buyer's willingness to buy the good.
a. "Looking for work. Excellent references from previous employers available."
b. "Electronic equipment for sale. All merchandise carries a one-year, no-questions-asked warranty."
c. "Car for sale by original owner. All repair and maintenance records available."

Solution Preview

Under monopolistic competition, there are implications on quality and variety of products produced. The sellers may know how good their products are, but buyers do not. The sellers use advertising to communicate the quality of the good.

a. This advertisement is ...

Solution Summary

This solution provides a detailed explanation of the given economics question.

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