Deck 3: The Big Picture: Economic and Regulatory Aspects

Question 1

The Better Business Bureau's files on violators are open to the public.

Answer 1

True
Explanation: The BBB's files on violators are open to the public. Records of violators who do not comply are sent to appropriate government agencies for further action.

Question 2

In the context of advertising, children are rarely treated as sole decision makers.

Answer 2

False
Explanation: While most children and parents are still joint consumers, more and more children are becoming sole decision makers.

Question 3

When a bakery claims through an ad that it bakes and sells the "the best cinnamon rolls in the world", it is using puffery.

Answer 3

True
Explanation: Puffery refers to exaggerated, subjective claims that can't be proven true or false, such as "the best," "premier," or "the only way to fly."

Question 4

The moment a company begins to advertise, it sets off a chain reaction of economic events.

Question 5

Proponents of advertising believe that it fosters employment and gives consumers a wider variety of product choices.

Question 6

The importance of advertising is best demonstrated by the principle of communal interest.

Question 7

The more commercials that hit the consumer's brain, the less effective paid advertising is.

Question 8

When an advertiser acts unethically or irresponsibly, he/she automatically violates the law.

Question 9

A patent is a form of protection provided to the authors of "original works of authorship," including literary, dramatic, musical, artistic, and certain other "intellectual works."

Question 10

The chief function of the consumer protection agencies is to protect local consumers against unfair and misleading practices by area merchants.

Question 11

Deceptive advertising occurs when a consumer is "unjustifiably injured" or there is a "violation of public policy."

Question 12

Intense competition always tends to stimulate the number of businesses in an industry.

Question 13

Avoiding negative stereotypes is the same as ignoring cultural diversity.

Question 14

CARU is a legal body that safeguards the interests of the advertising industry.

Question 15

Truthful commercial speech is entitled to significant, if not full, protection under the First Amendment.

Question 16

Critics opine that advertising is so powerful that consumers are helpless to defend themselves against it.

Question 17

Proponents of advertising say advertised products are unsafe because they do not put a company's name and reputation on the line.

Question 18

A consent decree is a document the advertiser signs agreeing to stop the objectionable advertising without admitting any wrongdoing.

Question 19

Comparative advertising is illegal in the United States.

Question 20

Advertising adds value to a brand by educating customers about new uses for a product.

Question 21

The AAF is instrumental in influencing agencies and advertisers to abide by its Advertising Principles of American Business because most local advertising clubs belong to this federation.

Question 22

_____ refers to exaggerated, subjective claims that can't be proven true or false.

A)Covert advertising
B)Puffery
C)Brand value
D)Bait-and-switch
E)Stereotyping

Question 23

Which of the following functions does advertising serve in countries where consumers have more income to spend after their physical needs are satisfied?

A)It stimulates the sale of products with relatively inelastic demand.
B)It helps achieve long-term acceptance for products that do not meet consumer approval.
C)It discourages the entry and use of new products in the market.
D)It stimulates innovation and new products.
E)It discourages competition.

Question 24

According to the _____, in an economy that produces more goods and services than can be consumed, advertising keeps consumers informed of their alternatives and allows companies to compete more effectively for consumer dollars.

A)motivational theory
B)utilitarian framework
C)abundance principle
D)AIDA approach
E)Two-factor theory

Question 25

Advertising agencies cannot be held legally liable for fraudulent or misleading advertising claims as the products or services belong to their clients.

Question 26

Consumer advocate groups investigate advertising complaints received from the public and those that grow out of their own research.

Question 27

Television networks rarely review advertising.

Question 28

Advertising agencies rely entirely on the information provided by the advertisers about their products or services and rarely verify claims made by the them.

Question 29

David visited the supermarket to buy soft drinks. In this instance, David's demand for soft drinks can be classified as _____.

A)selective demand
B)primary demand
C)unwholesome demand
D)latent demand
E)negative demand

Question 30

Which of the following best supports the statement: "Advertising stimulates a healthy economy"?

A)Today's consumers are no more concerned about prices than before.
B)In contemporary times, the demand for luxury goods far exceeds the supply.
C)Today's consumers are no less concerned about reducing social costs than before.
D)The supply of goods with relatively inelastic demand has remained constant over the years.
E)Consumers are now more informed and in a position to insist that manufacturers be held accountable for their advertising.

Question 31

In which of the following ways does advertising add value to a brand?

A)By making products functionally better
B)By eliminating sexual stereotypes
C)By making products better known
D)By benefiting generic brands the best
E)By addressing product's quality directly

Question 32

Advertising helps keep prices down by:

A)educating consumers about new uses of products.
B)conveying positive images of products.
C)lowering the cost of production.
D)encouraging competition.
E)offering people the opportunity to satisfy symbolic wants and needs.

Question 33

Which of the following statements is true about the effect of advertising on prices?

A)In industries subject to government price regulation, advertising has historically had no effect on prices.
B)Advertising affects prices of all products regardless of price regulation by the government.
C)Advertising makes generic products costlier.
D)Advertising often contributes to rising prices as it eliminates competition.
E)Historically, advertising has had significant effect on prices of agricultural products.

Question 34

In declining markets:

A)advertising stimulates demand for the entire product class.
B)the only effect advertising will have on primary demand is to slow the rate of decline.
C)advertising has no influence over selective demand.
D)the only effect advertising will have on selective demand is to slow the rate of decline.
E)advertisers are largely indifferent to conquest sales.

Question 35

As a cost of doing business, advertising is paid for by the _____.

A)manufacturers
B)wholesalers
C)ad agencies
D)retailers
E)consumers

Question 36

For a snack on a cold day, Teresa wants a bowl of Lin's chicken noodle soup. Which of the following types of demand does Teresa have?

A)Primary demand
B)Unwholesome demand
C)Selective demand
D)Latent demand
E)Negative demand

Question 37

Criticisms that focus on the style of advertising, saying it's deceptive or crafty, are referred to as _____.

A)short-term manipulative arguments
B)testimonials
C)long-term macro arguments
D)consent decrees
E)patents

Question 38

Simon Bates, a market analyst, believes that advertising sometimes causes prices of products to increase which, in turn, affect consumer demand adversely. In this instance, Bates is focusing on the _____ role of advertising.

A)economic
B)societal
C)legal
D)moral
E)ethical

Question 39

When the city of Pensacola in Florida uses the slogan, "the best seafront vacation in the Americas" to promote tourism in the area, it is using _____.

A)covert advertising
B)demarketing
C)puffery
D)bait-and-switch
E)a stereotype

Question 40

The _____ framework, derived from the idea that society should promote behaviors that foster the greatest good for the most people, offers a system of free enterprise that has raised living standards better than any other economic system in history.

A)elitist
B)utilitarian
C)totalitarian
D)authoritarian
E)monopolistic

Question 41

A socially responsible company is most likely to:

A)act in the interest of the community.
B)view puffery as a persuasive and sustainable means of attracting buyers.
C)view deceptive advertising as a necessary measure to enhance revenues.
D)consciously engage in stereotyping demographic groups in the community.
E)discount social media as an effective means of communicating with the public.

Question 42

Historically, the British have been known to use the derogatory term "frogs" to refer to the French. When a London-based language institute advertised its French language course from elementary to advanced levels, it pictured the development of a frog in stages from an egg through a tadpole to full maturity. This would be an example of _____.

A)puffery
B)demarketing
C)bait-and-switch
D)cognitive bias
E)stereotype perpetuation

Question 43

A company that manufactured ladders advertised its products as "the strongest, safest, and the most durable ladders in the world." This is an instance of _____.

A)nonproduct advertising
B)covert advertising
C)bait-and-switch
D)puffery
E)stereotyping

Question 44

_____ refers to doing what society views as best for the welfare of people in general or for a specific community of people.

A)Puffery
B)Substantiation
C)Moral obligation
D)Social responsibility
E)Social justice

Question 45

Recently, an automobile company manufacturing racing cars and a reputed fashion house teamed up to design and market sports blazers. Ten dollars from the sale of each blazer was donated to a cancer foundation. By contributing to the foundation, the automobile company is:

A)engaging in product diversification.
B)initiating a product development strategy.
C)perpetuating a materialistic viewpoint.
D)boosting selective demand.
E)behaving in a socially responsible fashion.

Question 46

Which of the following is included in the Central Hudson test?

A)The regulation of commercial speech is illegal.
B)The government must convincingly demonstrate that there are various alternatives to accomplish the same end without restricting free speech.
C)The government is not obliged to establish that the cessation of commercial speech would be effective in furthering the government's interest.
D)The ad in question may contain misleading claims as long as these are not numerous.
E)The government must prove that the absence of regulation would result in undesired outcomes.

Question 47

An ad for a beauty product claimed that its skin-whitening properties could "cure the blackness of the darkest Africans." Watchdog groups are most likely to accuse such an ad of _____.

A)perpetuating of a stereotype
B)promoting materialism
C)engaging in demarketing
D)encouraging consumers to buy a poor quality product
E)providing incomplete information about a product

Question 48

Which of the following is a feature of puffery?

A)Objective claims
B)Genuineness
C)Validity
D)Fairness
E)Exaggeration

Question 49

Which of the following refers to the last level of ethical responsibility?

A)The group
B)The individual
C)Ethic definition
D)The society
E)Legal obligation

Question 50

According to African American Sam Perkins, the owner of Maryland's largest ad agency, "If you were to come from another planet and watch American television, you would think that all black people did was play basketball and hang out on street corners, and do rap music." In this instance, Perkins is accusing advertising of:

A)promoting materialism.
B)promoting puffery.
C)manipulating people into buying things they don't need.
D)perpetuating stereotypes.
E)violating public policy.

Question 51

Under current law, the only product claims that are considered deceptive are those that:

A)are factually false.
B)do not provide complete information.
C)violate public policy.
D)cannot be substantiated.
E)are both exaggerated as well as subjective.

Question 52

Which of the following statements about deceptive advertising is true?

A)Deceptive advertising helps establish long-term consumer confidence in the product being advertised.
B)Puffery becomes deceptive when taken literally.
C)Under current advertising law, puffery includes product claims that are factually false.
D)Puffery in advertisement enhances brand value.
E)Nonproduct facts are rarely used in deceptive advertising.

Question 53

The FTC defines _____ as any ad that contains a misrepresentation, omission, or other practice that can mislead a significant number of reasonable consumers to their detriment.

A)action advertising
B)nonproduct advertising
C)deceptive advertising
D)unfair advertising
E)subversive advertising

Question 54

The basic activity of the _____ is the review and evaluation of child-directed advertising in all media.

A)Children's Rights Council
B)Children's Advertising Review Unit
C)Council of Ethical Adverising for Children
D)Children's Advertising and Short Film Board
E)Children's Media Regulatory Council

Question 55

Which of the following comprise the first level of ethical responsibility?

A)Individual level
B)Societal level
C)Level of personal integrity
D)Economic level
E)Level of singular ethical concepts

Question 56

Which of the following is an instance of stereotyping in advertising?

A)The depiction of cigarette as a product with high social costs
B)The depiction of women as homemakers
C)The depiction of women as multitasking professionals
D)The depiction of aged people as versatile, energetic, and enthusiastic
E)The depiction of men as caregivers

Question 57

Selective limitation of freedom of commercial speech threatens every legal business in America primarily because any limitation on the freedom to advertise:

A)automatically provides huge, monopolistic advantage to the category leaders.
B)increases economic inequities among consumers.
C)fuels price wars.
D)hinders the dissemination of complete information.
E)leads to deceptive advertising.

Question 58

Who among the following is/are responsible for executing laws passed by Congress on the national level?

A)The mayor
B)The governor
C)Attorneys general
D)Federal commissions
E)The police chief

Question 59

Being ethical refers to:

A)making exaggerated, subjective claims that can't be proven true or false.
B)doing what society views as best for a specific community of people.
C)doing what is morally right in a given situation.
D)claiming superiority to competitors in some aspect.
E)doing what is mandated by the law.

Question 60

An ad for a soft drink that uses the slogan: "Life is good" is employing _____.

A)a comparative fact
B)advocacy information
C)a nonproduct fact
D)a short-term manipulative argument
E)a long-term macro argument

Question 61

When Melissa looked at the container of weed and grass killer on a store shelf, she noticed a label on the container that read, "Avoid contact with eyes. This product can cause eye irritation." This is this an example of _____.

A)puffery
B)a testimonial
C)noise
D)a consent decree
E)an affirmative disclosure

Question 62

The _____ protects all copyrighted material, including advertising, in the United States.

A)Better Business Bureau
B)Library of Congress
C)Federal Trade Commission
D)Federal Department of Commerce
E)U.S.Patent Office

Question 63

A cease-and-desist order:

A)is issued in the interest of advertisers and prevents the government from regulating free speech unfairly.
B)is issued to slow the demand for goods with high social costs.
C)is issued to prohibit further use of deceptive or unfair advertisements.
D)is issued after advertisers sign consent decrees.
E)is a statutory order limiting the operations of advertisers in foreign countries.

Question 64

Some years ago, a discount store advertised that it was selling a pair of diamond earrings whose price had been reduced from the regular price of $1,199 to a discounted price of $399. Upon investigation, it was discovered that there was no evidence that the store had ever sold the earrings at the mentioned "regular" price. Which of the following types of advertising is this an example of?

A)Deceptive advertising
B)Corrective advertising
C)Nonproduct advertising
D)Covert advertising
E)Comparative advertising

Question 65

A(n) _____ refers to a document the advertiser signs agreeing to stop the objectionable advertising without admitting any wrongdoing.

A)trademark
B)consent decree
C)testimonial
D)customer feedback form
E)estate clearance decree

Question 66

If a suspected violator cites survey findings or scientific studies, the FTC is likely to ask for _____.

A)substantiation
B)endorsements
C)testimonials
D)affirmative disclosures
E)consent decree

Question 67

The label on a carton of ice cream in a local retail shop read, "Attention Diabetics: Contains carbohydrates naturally occurring in milk, does not contain sucrose". This is an example of _____ and would be important to people who are concerned about maintaining the right blood sugar levels.

A)an affirmative disclosure
B)a testimonial of goodness
C)puffery
D)noise
E)a questionable endorsement

Question 68

An in-flight magazine ran ads promoting exotic Russian caviar at significantly lower prices than usual. Later, FTC investigators determined that the caviar was not only produced locally in the U.S. but was also overpriced. In this instance, the advertisers of the caviar had engaged in _____.

A)demarketing
B)puffery
C)covert advertising
D)deceptive advertising
E)product diversification

Question 69

Redwagon, an automobile manufacturer, was charged for its failure to warn elderly customers about safety problems in one of its models, the Red Auto. Elderly users of the Red Auto were substantially inconvenienced owing to the lack of information pertaining to the safety problem in their cars. In this case, the FTC found that Redwagon had failed to address this safety issue in their ads for the Red Auto. This is an example of _____.

A)corrective advertising
B)comparative advertising
C)unfair advertising
D)covert advertising
E)deceptive advertising

Question 70

_____ occurs when a consumer is "unjustifiably injured" or there is a "violation of public policy."

A)Deceptive advertising
B)Unfair advertising
C)Comparative advertising
D)Covert advertising
E)Nonproduct advertising

Question 71

The _____ is responsible for protecting the public interest and encouraging competition. Its control over broadcast advertising is actually indirect, stemming from its authority to license broadcasters or revoke their licenses.

A)Federal Trade Commission
B)National Advertising Review Council
C)Better Business Bureau
D)Federal Communications Commission
E)Inter-American Telecommunication Commission

Question 72

If an ad is deceptive, it is most likely to:

A)contain exaggerated claims that cannot be verified and are unlikely to mislead reasonable customers.
B)contain misrepresentation or omission of facts.
C)solely consist of claims made without prior substantiation.
D)cause unavoidable injuries to consumers.
E)contain objective comparisons of competing products.

Question 73

The Nutritional Labeling and Education Act (NLEA), which went into effect in 1994, gave the FDA additional muscle by:

A)prohibiting puffery in advertisement.
B)allowing pharmaceutical companies to advertise their drugs on broadcast media as long as they mentioned any important possible side effects.
C)setting stringent legal definitions for terms such as fresh, light, low fat, and reduced calories.
D)influencing positive personal qualities and behaviors in children.
E)reviewing and evaluating child-directed advertising in all media.

Question 74

A complaint was filed with the FTC against a flower company for false and misleading advertising. The flower company claims that it ships its inventory "directly from the fields." The ads categorically mentioned that the flowers were not picked until they were ordered. In reality, however, the flower company stored flowers in refrigerated warehouses and shipped these to the customers once an order was placed. The FTC has ordered the flower company to _____ in order to explain and rectify the offending ads.

A)sign a consent decree
B)run a covert advertisement
C)run a corrective advertisement
D)honor a cease-desist order
E)engage in demarketing

Question 75

Green Life, a supermarket based in Louisiana, recently came under scrutiny when it distributed leaflets that explicitly discouraged consumers from shopping at Appleton Supermarket, Green Life's rival. In the leaflet, Green Life provided a comparative price chart that compared the prices of similar merchandise available at both the supermarkets. The price chart promoted the view that Green Life provided far better value for consumer dollars than did Appleton. Appleton alleged that Green Life's claims were not only misleading but also instrumental in jeopardizing its sales. In this instance, Green Life had engaged in _____.

A)demarketing
B)puffery
C)covert advertising
D)product development
E)deceptive advertising

Question 76

Through the issuance of _____, the government provides incentives to invent, invest in, and disclose new technology worldwide.

A)trademarks
B)copyrights
C)patents
D)trade licenses
E)consent decrees

Question 77

Which of the following courses of action is the FTC most likely to take if the advertiser refuses to sign a consent decree?

A)Ask for substantiation
B)Issue a cease-and-desist order
C)Scrutinize testimonials
D)Impose a non-compete clause on the advertiser
E)Ask for affirmative disclosure for product deficiencies

Question 78

Which of the following statements about the Food and Drug Administration (FDA) is true?

A)The FDA has authority over the labeling, packaging, and branding of all packaged foods and therapeutic devices.
B)The FDA regulates the prices of food products.
C)The FDA requires health food manufacturers to list only the basic ingredients of their products on package labels.
D)The FDA regulates health insurance.
E)The FDA is not authorized to regulate the content of pharmaceutical ads.

Question 79

Which of the following is true of a trademark?

A)It grants exclusive right to print, publish, or reproduce a protected ad for the life of the trademark.
B)It is a form of protection provided to the authors of "original works of authorship."
C)It is used to protect scientific inventions against infringement.
D)It is issued by the government to provide incentives to invent, invest in, and disclose new technology worldwide.
E)It is used by a manufacturer to identify his goods and distinguish them from those manufactured or sold by others.

Question 80

MedPro, an American drug manufacturer, claimed in an ad that its new drug for reducing cholesterol in adults is better than other similar drugs currently available in the market. According to the claims made by MedPro, the new drug significantly reduced the chance of heart disease, a dreaded side effect of some cholesterol-reducing drugs. Furthermore, laboratory tests helped substantiate MedPro's claim that the new drug substantially reduced the risk of heart disease in patients with high cholesterol. This is an example of _____.

A)deceptive advertising
B)corrective advertising
C)puffery
D)demarketing
E)comparative advertising