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PAGE ONE Economics
®
TEACHER EDITION
Middle School Version
Page One Economics® is an informative accessible essay on timely economic
issues. The Teacher Edition provides the essay; student questions with answers;
and additional lesson ideas for classroom, extra credit, or makeup assignments.
National Standards and Benchmarks (see page 12)
April 2017
Advertising:
Dollars and Decisions
Jeannette N. Bennett, Senior Economic Education Specialist
PAGE ONE Economics
®
Advertising:
Dollars and Decisions
Jeannette N. Bennett, Senior Economic Education Specialist
GLOSSARY
Advertising: Communication used by businesses to persuade consumers to buy a
good or service.
“Mass demand has been created almost entirely through the
development of advertising.”
—Calvin Coolidge, October 27, 19261
Choice: A decision made between two or
more possibilities or alternatives.
Consumers: People who buy goods and
services to satisfy their wants.
Decisionmaking: Deciding among choices
(alternatives or options).
Demand: The quantity of a good or service
that buyers are willing and able to buy at
all possible prices during a certain time
period.
Price: The amount of money, determined by
the interaction of buyers and sellers, that
a buyer must pay to acquire a good, service, or resource.
Profit: The amount of revenue that remains
after a business pays the costs of producing a good or service.
Spend: To use some or all of your income to
buy things you want now.
Introduction
Having dollars in your pocket is one thing; keeping them there is another.
Businesses want you to spend your money on the goods and services
they sell. In fact, consumers see or hear as many as 4,000 to 10,000 advertisements each day!2 This advertising is designed to increase or create
demand for products and influence consumers’ choices about spending. Through persuasion, some of the money in your pocket is spent
because of advertising.
Advertising Benefits
Advertising benefits both buyers and sellers. First, it provides information
to consumers about new products available and gives reasons to buy and
use the advertised goods or services. Also, it provides information on the
prices of goods or services. This information helps consumers know where
a product can be bought at the lowest price. Advertising pays for much
of the cost of newspapers, magazines, television, radio, the Internet, and
other media. Because of this, consumers pay less to use these services.
And finally, advertising increases the demand for goods and services. It
helps businesses increase their sales.
The Purpose of Advertising
Advertisements, or ads, may be designed to convince consumers to stay
with well-known brands. They may also be designed to introduce a new
brand. Using slogans, logos, jingles, unique packaging, and designs creates
“brand personality” and familiarity with products. For example, even before
they can read, most children recognize the McDonald’s golden arches.
This influences their tastes and preferences and increases the demand for
McDonald’s products. Advertising can help keep current customers and
influence other consumers to switch brands.
April 2017
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PAGE ONE Economics®
Types of Advertising
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2
Figure 1
Ads are used to deliver a message to consumers. Some
ads are only in print format with or without pictures.
Others are commercials that may include audio only or
audio and visuals. Commercials are usually between 10
and 60 seconds long.3 An infomercial is a very long commercial—sometimes 30 minutes long. It tells about a
product, and sometimes there is a special offer to purchase the product right away.
Advertising as a Business
Advertising is a business and industry in itself. In fact,
there are careers and job opportunities in advertising.
People have jobs to design and create ads. They pay
attention to details, color, words, design, and appearance,
as well as the media type(s) to be used. Advertising
agencies work hard to present products most favorably.
Researchers collect responses from consumer test groups
to pretest ads and fine-tune them to the smallest details
before they are released.
Advertising Timeline
In the United States, Benjamin Franklin advanced advertising in the mid-1700s. Franklin was the publisher of
the Pennsylvania Gazette. He created a way to lower the
paper’s cost by selling newspaper ads. The idea was not
successful at first because Franklin could not convince
other businesses to buy ads. He tried a different approach
and began to advertise one of his own inventions—the
Franklin stove. The sales of the stove boomed. Other businesses noticed and began to buy ads in the Pennsylvania
Gazette. After this, Franklin was able to produce his paper
at a lower cost, sell his newspaper at a lower price, and
earn a profit.4
SOURCE: Richter, Felix. “50 Years of Growth Wiped Out in a Decade.” statista.com,
September 17, 2012; https://www.statista.com/chart/612/newspaper-advertising-revenue-from-1950-to-2012/, accessed March 21, 2017. Used by permission.
visions in the United States.8 In 2004, more than 98 percent of American households had a television and the
average home had more than two.9 In 2016, on average,
American adults watched about 5 hours of television
per day.10
Television reaches a large number of consumers at the
same time—and of course, the networks are filled with
commercials. In 2015, the Fox News Channel had the
most commercials of all networks overall with almost 17
minutes of each hour devoted to commercials. The CBS
television network had almost 14½ minutes, while ABC
and NBC had almost 14 minutes per hour.11
Radio broadcasting began on a large scale in the 1920s.
The Golden Age of Radio began around 1925. In 1926
there were plans for radios to be in 26 million American
homes.7 The radio changed advertising by adding sound.
This included voice, music, and jingles.
On average, there are 38 ads airing every minute over
national television networks. Research and data are used
by advertisers to target the “right people” in the most
effective way. Some considerations include timing (when
to run an ad) and the length of the ad. For example, data
from 2013 reveal that 125 million people watch television
on Sunday. This number is more than on any other day
of the week. In this same year, the number of 15-second
ads increased to 44 percent of all ads and were equally
effective as longer ads.12 Information on changes in the
makeup of the population is important as well. For example, are there more retired people who watch the news?
Are there more young people who use computers?
When television became popular, there began to be fewer
print ads (Figure 1). In 1992, there were 201 million tele-
Beginning in the 1990s, the Internet and computers
began to add more change to advertising. In fact, the
By the late 1800s, long, wordy ads were used less often
and more catchy phrases or slogans were used.5 This
helped consumers remember the product better. For
example, Ivory soap was marketed by Proctor and Gamble
as the “soap that floats.”6
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Figure 2
3
Common Advertising Techniques
• Gimmick—Uses clever ideas or devices
• Glittering generalities—Presents luxury, wealth, and glamour
• Bandwagon—Gives the impression that everybody is buying and using the product
• Testimonial—Well-known or famous person shares
information about the product
• Just plain folks—Presents product as traditional, old-fashioned, and “homey”
• Humor—Aims to be funny or amusing
• Statistical approach—Uses numbers and facts to convince
• Expert approach—Uses a person who is or acts like a
professional in the area
SOURCE: Richter, Felix. “Money Follows Eyeballs – Mobile Ad Boom Continues.”
Statistics Portal, December 6, 2016; https://www.statista.com/chart/5096/
worldwide-ad-spending-growth-by-medium/. Used by permission.
Common Advertising Venues
TelevisionTelephone
Radio Mail
BillboardsNewspapers
MagazinesInternet
Email
Mobile devices
world’s largest advertiser, Procter & Gamble, has begun
shifting more to digital advertising. The company believes
online ads are becoming a better way to advertise than
using all TV or print ads.13
Today, smartphones and mobile devices are being used
for advertising. It is predicted that by 2019 advertising
on mobile devices will reach $160 billion and become
the second-largest advertising medium, while television
will retain the number one spot.14 (See Figure 2 for estimated changes in ad spending.)
Advertising Targets
Advertisers determine the target audience and their
interests. For example, targeted groups may be children,
families, consumers who think about careful spending,
consumers who think about health, consumers who like
sports, older or retired consumers, or working consumers.
SOURCE: Dale, Larry R. “Economics for the Elementary Grades.”
Curriculum guide, Arkansas State University, 1992, p. 139.
In each case, ads are designed to fit the particular consumer group and influence its choices. The method of
delivering the ad is also important. For example, ads for
beauty products are more effective in a women’s magazine rather than on the radio (see the “Common Adver­
tising Venues” boxed insert).
Advertising Techniques
Some ads provide basic information such as price, size,
and quantity. Sometimes brand labels and the packaging
itself can serve as an ad. For example, a tube of toothpaste
is not labeled simply “toothpaste.” It may include the
brand name and some descriptions such as “New and
Improved,” “Fresh Tasting,” “Helps Prevent Cavities,” or
“Whitening.” And adding cartoon characters and bright
cheerful colors on cereal boxes can influence children’s
tastes and preferences. Such designs can create greater
demand for a certain cereal by children. Most ads use
one or a combination of techniques to influence consumer spending and persuade consumers of the value
of the product (see the “Common Advertising Techniques”
boxed insert). But in all cases, the tastes and preferences of consumers are considered in an effort to affect
decisionmaking.
Advertising Pricing
The first official paid television commercial in the United
States was broadcast in 1941. It was a short and simple
ad for a watch and was shown before a baseball game
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Figure 3
Figure 4
SOURCE: Loesche, Dyfe. “Nearly 1 in 4 Super Bowl Fans Watch for TV Commercials.”
statista.com, February 5, 2016; https://www.statista.com/chart/4325/reasonsto-watch-super-bowl/, accessed March 21, 2017. Used by permission.
SOURCE: Richter, Felix. “Super Bowl Ad Prices Doubled in a Decade.” statista.
com, January 16, 2017; https://www.statista.com/chart/826/super-bowl-tvadvertising-in-the-united-states/, accessed March 21, 2017. Used by permission.
in New York. The total price for the ad was less than $10.
Since that time, the cost of advertising has increased
dramatically.
Conclusion
The advertising industry now generates tens of billions
of dollars per year. In 2016, national TV commercials cost,
on average, around $8,000 for a 30-second spot.15 Pricing
of advertising depends on several things. The price may
be set because of the size of the print ad or length of time
of the radio or TV commercial. Prices can vary widely by
publication or program and can depend on how many
people will see it.
The Super Bowl is an example of expensive advertising.
Since 2010, the Super Bowl has been the most-watched
TV broadcast of each year. About 114 million viewers
watched the 2015 Super Bowl. And many people watch
the game just to see the commercials (Figure 3). With
such a large number of viewers, the price of Super Bowl
advertising continues to increase (Figure 4). The price of
a 30-second commercial for the first Super Bowl in 1967
was $42,000 and increased to over $1 million in 1995.
By 2015, the price had risen to $4.5 million. In 2016, the
price was $5 million, or $166,666 per second.16 For the
2017 Super Bowl, advertisers paid $5.02 million for a
30-second commercial.17
The purpose of advertising has stayed the same over
time: to create demand for products by influencing consumer tastes and preferences. However, advertising strategies and methods have changed and will continue to
do so. Ben Franklin would be amazed with today’s ads.
Mark Twain said, “Many a small thing has been made
large by the right kind of advertising.” Finding the “right
kind” of advertising is a challenge for both advertisers
and consumers. Advertising must change as the population and technology changes. And consumers must use
the “right kind” of decisionmaking. As a consumer, it is
your responsibility to think carefully about ads so you can
keep more dollars in your pocket. n
PAGE ONE Economics®
Notes
1 Coolidge, Calvin. Address Before the American Association of Advertising
Agencies. Washington, DC., October 27, 1926;
http://www.presidency.ucsb.edu/ws/?pid=412.
2 Marshall, Ron. “How Many Ads Do You See in One Day?” Red Crow Marketing.
September 10, 2015;
http://www.redcrowmarketing.com/2015/09/10/many-ads-see-one-day/.
3 Martin, Amie. “What Are the Differences Between Advertisements and
Commercials?” Houston Chronicle, 2017; http://smallbusiness.chron.com/differences-between-advertisements-commercials-10353.html.
4 Bennett, Jeannette. “Ben Franklin: Highlighting the Printer.” Lesson plan,
Federal Reserve Bank of St. Louis, 2012, pp.14-15; https://www.stlouisfed.org/~/
media/Education/Lessons/pdf/Ben-Franklin-Highlighting-the-Printer.pdf.
5 O’Barr, William M. “A Brief History of Advertising in America.” Advertising &
Society Review, 2005, 6(3); https://muse.jhu.edu/article/193868.
Federal Reserve Bank of St. Louis | research.stlouisfed.org
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12 “Advertising & Audiences: State of the Media.” Nielsen Company, May 2014;
http://www.nielsen.com/content/dam/nielsenglobal/jp/docs/report/2014/
Nielsen_Advertising_and_%20Audiences%20Report-FINAL.pdf.
13 O’Reilly, Lara. “These Are the 10 Companies That Spend the Most on
Advertising.” Business Insider, July 6, 2015; http://www.businessinsider.com/10biggest-advertising-spenders-in-the-us-2015-7/#1-procter-and-gamble-adspend-down-42-to-46-billion-the-cpg-giant-is-also-the-worlds-largest-advertiseralthough-this-spring-the-companys-cfo-revealed-a-plan-to-cut-spend-on-adagencies-by-up-to-500-million-the-company-is-also-shifting-huge-amounts-ofits-budget-to-digital-advertising-because-it-believes-online-ads-deliver-a-higher-return-on-investment-than-tv-or-print-one-of-its-most-popular-campaignsof-last-year-was-its-always-likeagirl-spot-which-has-been-viewed-on-youtubemore-than-58-million-times-10.
14 Richter, Felix. “Money Follows Eyeballs—Mobile Ad Boom Continues.”
December 6, 2016;
https://www.statista.com/chart/5096/worldwide-ad-spending-growth-by-medium/.
6
“Ivory Soap.” Ohio History Central,
http://www.ohiohistorycentral.org/w/Ivory_Soap, Accessed February 12, 2017.
15 Rodriguez, Ashley. “Watch: The First TV Commercial, Which Aired 75 Years Ago
Today.” Quartz, July 1, 2016; https://qz.com/721431/watch-the-first-tv-commercial-which-aired-75-years-ago-today/.
7
Federal Reserve Bank of St. Louis. “Turn Your Radio On.” Lesson 5 in The Great
Depression curriculum; https://www.stlouisfed.org/~/media/Files/PDFs/GreatDepression/the-great-depression-lesson-5.pdf.
16
Schwartz, Nick. “Stunning Infographic Charts the Skyrocketing Cost of a Super
Bowl Ad.” USA Today Sports, February 6, 2016;
http://ftw.usatoday.com/2016/02/how-much-does-super-bowl-ad-cost.
8
17 Duffy, Thomas. “Super Bowl Ads 2017: Latest Info on Cost of 2017 Super Bowl
Commercials.” Bleacher Report, February 5, 2017; http://bleacherreport.com/
articles/2691154-super-bowl-ads-2017-latest-info-on-cost-of-2017-super-bowlcommercials.
datesandevents.org. “Television Invention Timeline.”
http://www.datesandevents.org/events-timelines/08-television-invention-timeline.htm, accessed February 24, 2017.
9 University of Texas at Austin. “Television History—A Timeline, 1878-2005.”
https://tarltonapps.law.utexas.edu/exhibits/mason_&_associates/documents/
timeline.pdf, accessed February 24, 2017.
10 Koblin, John. “How Much Do We Love TV? Let Us Count the Ways.” New York
Times, June 30, 2016; https://www.nytimes.com/2016/07/01/business/media/
nielsen-survey-media-viewing.html?_r=0.
11 Friedman, Wayne. “Fox Television Network, Fox News Highest In Commercial
Clutter.” May 20, 2016; http://www.mediapost.com/publications/article/276342/
fox-television-network-fox-news-highest-in-commer.html.
Please visit our website and archives http://research.stlouisfed.org/pageone-economics/ for more information and resources.
© 2017, Federal Reserve Bank of St. Louis. Views expressed do not necessarily reflect official positions of the Federal Reserve System.
PAGE ONE Economics®
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Name___________________________________ Period_______
Federal Reserve Bank of St. Louis Page One Economics ®:
“Advertising: Dollars and Decisions”
After reading the article, complete the following:
1. Refer to each topic in the table below. Does the article address or provide information on the topic? Write yes or no in the second column. If the answer is yes, write the title of the section of the article that provides information and evidence for your answer.
Topic
Yes or No
Section title
A. Income of advertising designer
B. First advertising with sound
C. Best colors to use for product packaging
D. Newspaper print advertising revenue for 2000
E. Hours Americans watch TV
F. The best advertising technique to use
G. Super Bowl advertising revenue for 2016
H. TV network with the most viewers
I. World’s largest advertiser
J. Ways to create “brand personality”
K. Packaging serving as advertisement
L. Misleading information in advertisements
2. List three ways in which advertising benefits consumers.
3. It is a consumer’s responsibility to think about and analyze ads. Give two reasons this is important.
PAGE ONE Economics®
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7
4. Ads are designed to target specific groups of consumers. If you were advertising the products in the table below, what group(s) of consumers would you target?
Product
Possible target audience(s)
Dolls
Large outdoor tents
Disposable diapers
Hardwood flooring
Dog collars and leashes
5. Businesses spend many dollars on advertising. What is their incentive to advertise?
6. On average, about how many minutes of each hour are devoted to news topics on the Fox News Channel?
7. The title of this article is “Advertising: Dollars and Decisions.” Explain how this title summarizes the contents of the article.
PAGE ONE Economics®
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8
Teacher’s Guide
Federal Reserve Bank of St. Louis Page One Economics ®:
“Advertising: Dollars and Decisions”
After reading the article, complete the following:
1. Refer to each topic in the table below. Does the article address or provide information on the topic? Write yes or no in the second column. If the answer is yes, write the title of the section of the article that provides information and evidence for your answer.
Topic
Yes or No
Section title
A. Income of advertising designer
No
B. First advertising with sound
Yes
C. Best colors to use for product packaging
No
D. Newspaper print advertising revenue for 2000
Yes
Advertising Timeline
E. Hours Americans watch TV
Yes
Advertising Timeline
F. The best advertising technique to use
No
G. Super Bowl advertising revenue for 2016
Yes
H. TV network with the most viewers
No
I. World’s largest advertiser
Yes
Advertising Timeline
J. Ways to create “brand personality”
Yes
Purpose of Advertising
K. Packaging serving as advertisement
Yes
Advertising Techniques
L. Misleading information in advertisements
No
Advertising Timeline
Advertising Pricing (Figure 4)
2. List three ways in which advertising benefits consumers.
• Provides information about new products
• Gives reasons to buy or use the advertised products
• Provides information about prices so consumers can compare prices among sellers
• Consumers pay less for newspapers, magazines, television, radio, the Internet, and other media because advertising pays for much of the cost.
3. It is a consumer’s responsibility to think about and analyze ads. Give two reasons this is important.
Answers will vary but may include the following:
• Ads can be misleading by using techniques that play on emotion. Examples: using famous people to endorse products, showing the product in a glamorous way, or giving the impression that everybody is using the product
• Ads can influence consumers to buy things they really don’t want.
• Ads can make products seem better than they really are.
• Ads can influence consumers to spend dollars they don’t need to spend.
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4. Ads are designed to target specific groups of consumers. If you were advertising the products in the table below, what group(s) of consumers would you target?
Product
Possible target audience(s)
Dolls
Young girls (or adults buying for girls)
Large outdoor tents
Families, Scout troops, campers
Disposable diapers
Parents of infants and young children
Hardwood flooring
Homeowners, landlords
Dog collars and leashes
Dog owners
5. Businesses spend many dollars on advertising. What is their incentive to advertise?
Ads can create demand for a good or service and increase businesses’ sales and profits.
6. On average, about how many minutes of each hour are devoted to news topics on the Fox News Channel?
60 minutes in one hour – 17 minutes of commercials = 43 minutes of actual news
7. The title of this article is “Advertising: Dollars and Decisions.” Explain how this title summarizes the contents of the article.
Answers will vary but may include the following:
•
Advertising is about dollars. Businesses pay money to advertise so they will earn more money from increased sales. Consumers spend dollars when they buy the advertised products.
•
Advertising is about decisions. Advertisers make decisions on the techniques and venues to use and how much money to spend. Consumers make decisions about what products to buy with their dollars.
PAGE ONE Economics®
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10
Extension Activity
Instruct the students to construct a chart with headings and columns like the one shown below and to add as many
rows as needed. Explain that they are to select any 30-minute television program and record on the chart information about each ad aired during that program. They are to summarize their findings and include the following:
• How many commercials were shown in the program?
• What advertising techniques were used the most?
• What target audience was identified the most?
Name of program:
Product advertised
Target audience(s)
Advertising technique(s) used
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11
Additional Resources
Econ Lowdown® of the Federal Reserve Bank of St. Louis provides numerous economic education resources for
teachers to use with their students. These free resources include lesson plans, videos, online modules, interactive
whiteboard lessons, and podcasts. They are available at https://www.stlouisfed.org/education.
The resources listed below from Econ Lowdown can be integrated with the content in this article. To register your
students for one or more of our online courses, on the Econ Lowdown website (linked above), click the “TEACHERS”
button to create or access your account and visit the Instructor Management Panel.
Making Personal Finance Decisions Curriculum Unit
The Making Personal Finance Decisions curriculum teaches valuable personal finance lessons grounded in economic
theory. The curriculum is divided into 10 themed units, with each unit containing two lessons. The 20 individual lessons
use a variety of teaching strategies designed to engage students in the learning process and equip them with the
knowledge and skills necessary to make informed personal finance decisions.
https://www.stlouisfed.org/education/making-personal-finance-decisions-curriculum-unit
The Art of Decisionmaking Online Course for Teachers and Students
If you look at what psychologists consider to be high-level stressors, you’ll find a list of about 40 life events. We have no
control over many of these events, but for more than half, we do. So much of our stress and success in life depends
on the decisions we make. In this short course, students learn the economic underpinnings of the need to make
decisions, why every decision bears a cost, and how to make informed decisions.
https://www.stlouisfed.org/education/the-art-of-decisionmaking-online-course-for-teachers-and-students
Ben Franklin: Highlighting the Printer
In this lesson, students will learn that money is an invention. They will read and analyze an essay focusing primarily
on one aspect of Ben Franklin’s life—his work as a printer—and how he was an inventor and entrepreneur who also
promoted the use of currency in the United States. Students will cite specific textual evidence regarding problems and
solutions and will answer questions and complete a timeline. By using evidence and information gleaned from text,
students will write a fictitious social media post defending the selection of Ben Franklin’s portrait for the $100 note.
https://www.stlouisfed.org/~/media/Education/Lessons/pdf/Ben-Franklin-Highlighting-the-Printer.pdf
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Middle School National Standards and Benchmarks
Common Core State Standards
Grades 6-12 Literacy in History/Social Studies, Science, and Technical Subjects
• Key Ideas and Details
RH.11-12.1: Cite specific textual evidence to support analysis of primary and secondary sources, connecting insights gained from specific details to an understanding of the text as a whole.
RH.11-12.2: Determine the central ideas or information of a primary or secondary source; provide an accurate summary that makes clear the relationships among the key details and ideas.
• Integration of Knowledge and Ideas
RH.11-12.7: Integrate and evaluate multiple sources of information presented in diverse formats and media (e.g., visually, quantitatively, as well as in words) in order to address a question or solve a problem.
Grades 6-12 Reading Standards for Informational Text
• Key Ideas and Details
RI.11-12.1: Cite strong and thorough textual evidence to support analysis of what the text says explicitly as well as inferences drawn from the text, including determining where the text leaves matters uncertain.
National Standards for Financial Literacy
Standard 2: Buying Goods and Services
People cannot buy or make all the goods and services they want; as a result, people choose to buy some goods and services and
not buy others. People can improve their economic well-being by making informed spending decisions, which entails collecting
information, planning, and budgeting.
• Benchmarks: Grade 4
6. People’s spending choices are influenced by prices as well as many other factors, including advertising, the spending choices of others, and peer pressure.
• Benchmarks: Grade 8
1. When making choices about what to buy, consumers may choose to gather information from a variety of sources. The quality and usefulness of information provided by sources can vary greatly from source to source. While many sources provide valuable information, some sources provide information that is deliberately misleading.
2. By understanding a source’s incentives in providing information about a good or service, a consumer can better assess the quality and usefulness of the information.
Voluntary National Content Standards in Economics
Standard 9: Competition and Market Structure
Competition among sellers usually lowers costs and prices, and encourages producers to produce what consumers are willing
and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing
and able to pay the most for them.
• Benchmarks: Grade 8
1. Sellers compete on the basis of price, product quality, customer service, product design and variety, and advertising.
2. Competition among sellers results in lower costs and prices, higher product quality, and/or better customer service. When competition among sellers is limited, sellers have some control over the prices they set.
Standard 14: Entrepreneurship
Entrepreneurs take on the calculated risk of starting new businesses, either by embarking on new ventures similar to existing
ones or by introducing new innovations. Entrepreneurial innovation is an important source of economic growth.
• Benchmarks: Grade 4
2. Entrepreneurs and workers often are innovative. They attempt to solve problems by developing and marketing new or improved products and processes.