Index
- Extract
- Tool of microeconomics
- Advertising modifies
the qualitative structure of the market
- The market grows only
if there is an augment in the income of the factors of production
- Effect on the nominal
and real income
- Potential demand and
effective demand
- Only the
macroeconomics policies modify the market
- Advertising, economic
growth, balance or recession
- Conclusions
1. Extract
Many people think that advertising increases market size. That idea is
logical because advertising augment the sales of products advertised, however,
it really does not expand the size of market. Therefore, advertising is not a
tool to reach economic growth, in terms of net accumulation of capital; in the
following paragraphs is explained why.
2. Tool of microeconomics
One of the main goals of microeconomics is the study of consumers and
businesses conduct to improve its behavior. The basic function of advertising
is to present the choices of goods and services of the market; advertising,
then, is a tool used by microeconomics to obtain one of their fundamental
objectives.
3. Advertising modifies the
qualitative structure of the market
Though advertising exerts a global effect on consumers it does not
change the quantitative structure of market; hence we say that advertising is
not an instrument for the economic growth in terms of net accumulation of
capital.
Advertising modifies the qualitative structure of market because it
forces competitors to improve their products. Competition embraces price,
quality and quantity. Generally advertising is developed in a positive sense
highlighting the advantages of products. Although there may be an implied comparison
between products, advertising prevents a direct or negative mention of
competitors. All these facts contribute to modify the qualitative structure of
the market.
Consumers would not know the advantages or disadvantages of the products
if there were no advertising.
4. The market grows only if there
is an augment in the income of the factors of production
Without an increase in the remuneration of the factors of production it
is not possible the market growth and vice versa: the market reduces its size
only if occur a reduction in the income of the factors of production; this
happen because of: a) the reduction of the public and private investment, b)
the decline of the consumer spending and c) the augment of inflation.
Advertising changes the habits of consumption and the demand of goods
and services. The market is comparable to a cake. The cake is divided in many
parts. Ones part are big and other small. Advertising only modifies the size of
the parts but the cake, as a whole, does not change by effect of advertising.
For example, if a company advertises its products is very likely to increase
their sales, but not due to market growth but because it has taken away
customers from competitors, so that gain of an advertiser is usually due to the
loss of its competitors.
Advertising can be compared with a zero sum game where some win and
other lose.
May be that the market grows, in other words, that the cake increases
its size but the only way is through the increased income of producers and
consumers.
5. Effect on the nominal and real
income
An augment in the remunerations of the factors of production represents
other problem: the situation of the nominal and real income. When nominal
income increases the real income tends to decrease, because the purchasing
power is affected by inflation. So that it is necessary to take measures to
diminish the effects of inflation after an increase of the nominal income.
6. Potential demand and effective demand
Advertising has other important economic effect: as a result of
advertising, consumers know the products and services that exist in the market;
sometimes they cannot buy products because they have not enough money; this is
the potential demand. This becomes effective demand when people obtain the
money to buy.
7. Only the macroeconomics
policies modify the market
Only the big decisions of economic policy change the quantitative
structure of the market; those policies are the monetary, fiscal and financial
policies, the concrete policies of production in the primary and secondary
sectors: energy, mining, agriculture and industry and the policies in the commercial
and services sector.
But the most important policy is the policy of employment and wages; it
determines the wellbeing of society. Without jobs and appropriate salaries
there is not possibilities of social progress. The governments set the minimum wage
and create incentives or perturbations to the generation of employment in the private
sector of the economy, so that the attitude of the governments is key to
increase the effective demand of the society.
Moreover, the governments, through the public spending are the
locomotives of the economy. The public spending is essential for the collective
wellbeing. The restriction of the public spending only brings more poverty,
unemployment and less consumption.
8. Advertising, economic growth,
balance or recession
Economic growth is the net accumulation of capital and is a consequence
of new investment; economic growth is what creates new jobs.
The other economic option is the balance, the status quo, which is a
result of the replacement investment.
Other economic alternative is recession, which is a consequence of the
reduction of the volume of investment and consumption.
The investment in advertising has a special feature: advertising is made
the same in times of economic expansion, balance or recession. It is obvious
that in times of expansion the investment is most. However, still in the most
adverse economic circumstances advertising stay in the market.
9. Conclusions
- Advertising does not increase the size of the market, its quantitative
structure; therefore it is not a tool for the economic growth.
- Quantitative market structure augments only due to the expansion of the
factors of production remunerations.
- On the contrary, advertising changes the qualitative structure of the
market because it forces competitors to improve their products and services.
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