September 23, 2023 

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AD VALOREM TARIFF: A tax on imports that is specified as a percentage of the value of the good or service being taxed. This is one form of trade barrier that's intended to restrict imports into a country. Unlike nontariff barriers and quotas, which increase prices and thus revenue received by domestic producers, an 'ad valorem tariff' generates revenue for the government. For example: a 15 percent ad valorem tariff on a TV set worth $100 would pay a tariff of $15. One advantage of an ad valorem tariff is that it keeps up with changes in prices (mostly inflation).

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Our extended sojourn through the winding complexities of the economy has worn the soles from my jogging shoes. For the best bargain on a new pair, let's consult those annoying flyers stuffed into the Sunday newspaper. We're in luck. The Mega-Mart Discount Warehouse Super Center is having their monthly "once in a lifetime" sale on jogging shoes. Without this Mega-Mart Discount Warehouse Super Center advertising supplement, I might have unknowingly paid a higher price for my brand new Fleet Feet Footwear jogging shoes. Isn't advertising wonderful?

It's Everywhere, It's Everywhere

Let's not draw any hasty conclusions about the wonderfulness of advertising until we know more about this beast. As a start, we do know that advertising is very, very widespread. Advertising splashes across newspaper and magazine pages, blurts out from radio broadcasts, comes with the daily mail, interrupts television programming, and invades the landscape on signs and billboards. It's seen on high-flying blimps, sewn onto the clothing of professional athletes, and embedded in major motion pictures with as much subtlety as a blow to the head with a sledge hammer.

Advertising is thrust upon us by the biggest multinational conglomerates; the smallest "mom and pop" stores; and everything between. Profit-seeking businesses don't have a monopoly on the advertising deed either. Private charities, churches, universities, government agencies, and even the military have all been known to allocate a few dollars of their respective budgets to advertising.

Let's put the full extent of advertising into perspective. A gadzillion dollars is spent each year (actually about $200 billion, but growing) just to pay for advertising space in magazines and newspapers, commercial air-time on television and radio, and other assorted media outlets. Gadzillions more are spent on the actors, photographers, models, advertising executives, copywriters, and everyone else who produces commercials and advertisements.

Our economy allocates a bunch of resources to advertising each year. Is this doing us any good? Would we be better off using those resources for something else? These are the questions that product-buying, television-watching pedestrians need to ask.

The Greatest Thing Since Sliced Bread?

Before we jump into the bad of advertising, let's try to be optimistic. Let's look for the good. There really is some good. For example:

  • Advertising works. Businesses advertise because it increases the demand for their products. Fleet Feet Footwear would sell fewer jogging shoes, if no one knew Fleet Feet Footwear made jogging shoes. Advertising helps get the word out. I'd say that this is pretty good for the business.

    Advertising has benefits, though, that go beyond business profits:

  • Advertising helps efficiency. Recall from Chapter 6, Our Unknown Economy, that information is essential for efficiency. When businesses advertise information about product availability and prices, overworked, underappreciated consumers -- like you and me -- have a better change of buying the products that we really want.

  • Advertising finances goods. Without advertising, our economy might lose some stuff that we enjoy, including television, sporting events, newspapers, and magazines, that are near-public goods. In fact, advertising can be thought of as a tax handled by businesses rather than the government. Much like the government collects taxes to pay for public goods, businesses charge a little extra for the stuff they sell, which is then used for advertising. Without some sort of indirect financing -- advertising or taxes -- these goods might not be produced. Consider this thought: Television entertainters, newsguys, even althetes, get the lion's share of their multi-gadzillion dollar salaries indirectly from advertising.

    To a lesser degree, advertising is sort of good because:

  • Advertising is a source of entertainment. When you get down to the nitty-gritty, television commercials and other advertisement can be quite entertaining. How many times have you dozed off through a less-than-enjoyable television show, only to wake up for a clever commercial?

Or The Slimy Underbelly of Our Economy?

Everything in advertising land is not necessarily brighter and whiter. Advertising has a few chinks in its armor that make critics suggest an aerial bombardment of Madison Avenue. For example:

  • Advertising is wasteful. Gadzillions of dollars are spent each year on advertising that may do little more than offset the effect of other advertising. Pepsi advertises to prevent Coke from getting a larger share of the market. Neither company actually sells more soft drink, they advertise to keep from selling less. If both stopped advertising, they would cut their expenses and free up our economy's resources for something more useful.

  • Advertising restricts competition. As we saw in Fact 4, Our Monopolized Markets, markets with a large number of competitors tend to be more efficient. Advertising can keep new firms into the market. While advertising has made Coke and Pepsi household names, who would even consider buying a new entry called Tasty-Cola? To achieve equal footing with the well-known Coke and Pepsi, Tasty-Cola would need to do some heavy -- and very, very expensive -- advertising.

  • Advertising is brainwashing, maybe. Psychologists and others who spend their days dissecting our brains suspect that advertising might exert undue influence over our behavior. For example, suppose a commercial for Hot Mamma Fudge Ice Cream Bananarama Sundae appears on your television screen at 9:00 in the evening as you're preparing for bed. By 9:15 you're at the Hot Mamma Fudge Ice Cream Parlor ordering a Bananarama Sundae. Is this coincidence? Were you really wanting a sundae, but just didn't know where you could get one at this late hour? Or were you unduly influenced by the commercial? The jury of brain-dissectors is still out on this one, but the possibility is real enough to consider.
A One-Sided Story

A word or two (really five) about the control of information through advertising is in order.

  • First, from Fact 6, Our Unknown Economy, we know information is a scarce good that's costly to acquire. As such, those with greater control of our economy's resources, also have greater control over information -- including advertising. If you're keeping track, businesses leaders of the second estate and government leaders of the first are the ones controlling most of the resources and thus information. Very few workers, consumers, and taxpayers of the third estate have this luxury.

  • Second, advertising only contains information that advertisers want known -- it's a one-sided story. For example, OmniCut will advertise durability and cutting power of it's OmniChopper 3000 lawnmower, but not that it tends to back up over the operator's foot -- separating said operator from some valuable toes.

  • Third, advertising contains the "other" side of the story, only if forced to do so by the government. Much like cigarettes contain warning labels, the government could force the OminCut, Inc. to warn potential buyers about the OmniChopper 3000's propensity to chop more than grass.

  • Fourth, sometimes government works for consumers and sometimes it works together with businesses. When the first and the second estate get together, then you had better kiss you toes good-bye.

  • Fifth, consumers can be saved if the fourth estate of journalism rides to the rescue, uncovering nefarious deeds of cooperation by government and business. This, unfortunately, assumes that the fourth estate remains independent of the first and second.

The bottom line on one-sided advertising can be summed up by a few tips for wary consumers:

Advertising Tips for the Wary Consumer

  • There's little doubt that some businesses use advertising for short-run, trick the consumer, profits. Many others, though, go for long-term customer loyalty that can only be had from honest, informative advertising. When you find this valuable information, use it to reduce your search efforts.

  • However, you should never loose sight of the fact that advertisers want to sell you something -- a product, a political candidate, a religious ideology, or whatever. They provide only one side of the story -- the good side. Their flashy commercials, catchy slogans, and witty jingles won't advertise the bad.

  • Take all advertising claims with a large, very large, grain of salt. When in comes to advertising: "Don't believe everything that you see and hear." And: "If it sounds to good to be true, it probably is."

Fact 7: Our Circular Worldxxx Those Astronomical ATHLETE SALARIES


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Today, you are likely to spend a great deal of time searching the newspaper want ads looking to buy either an ink cartridge for your printer or a rechargeable battery for your camera. Be on the lookout for telephone calls from former employers.
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