Which of the following is a shortcoming of advertising?

• A. It always leads to lower prices for consumers.
• B. It guarantees perfect information for all buyers.
• C. It eliminates product differentiation in the market.
• D. It can create barriers to entry for new firms.

Answer: (D)

Verified step by step guidance

1. Understand the role of advertising in microeconomics: Advertising is a tool used by firms to inform consumers about their products, differentiate their products from competitors, and potentially increase demand.
2. Analyze each option in the context of advertising's effects:
3. - "It always leads to lower prices for consumers." Consider that advertising can increase demand and brand loyalty, which may allow firms to charge higher prices rather than lower them.
4. - "It guarantees perfect information for all buyers." Reflect on the fact that advertising may provide information, but it can also be biased or misleading, so perfect information is not guaranteed.
5. - "It eliminates product differentiation in the market." Think about how advertising often emphasizes product differences to create brand identity, so it usually increases rather than eliminates differentiation.