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KRUGMAN'S MICROECONOMICS for AP* Product Differentiation and Advertising Margaret Ray and David Anderson Micro: Econ: 32 68 Module.

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Presentation on theme: "KRUGMAN'S MICROECONOMICS for AP* Product Differentiation and Advertising Margaret Ray and David Anderson Micro: Econ: 32 68 Module."— Presentation transcript:

1 KRUGMAN'S MICROECONOMICS for AP* Product Differentiation and Advertising Margaret Ray and David Anderson Micro: Econ: Module

2 What you will learn in this Module : How and why oligopolists and monopolistic competitors differentiate their products. The economic significance of advertising and brand names.

3 Product Differentiation Product differentiation is the attempt by firms to convince buyers that their products are different from those of other firms in the industry.

4 Differentiation by Style or Type As long as consumers have different tastes, producers will be able to increase profits by differentiating their products to suit those tastes.

5 Differentiation by Location Many monopolistically competitive firms differentiate their product by location – particularly in service industries

6 Differentiation by Quality Even if quality differences are mostly perceived, consumers are often willing to pay a higher price for a product they perceive to be of higher quality.

7 Is Product Differentiation Efficient? Gets mixed reviews from economists: Product differentiation can increase product variety which can benefit consumers. Product differentiation can be a waste of resources if there is no real benefit from the differentiation.

8 Is Advertising Efficient? Gets mixed reviews from economists. Advertising can: Provide useful information which can benefit consumers. Signal the quality of a product. Mislead consumers which can be an inefficient use of resources.


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