Question

Using demand and supply diagram, analyse the likely effect of an incr

advertising on the equilibrium price and equilibrium quantity of a products in the market​

Answer 1

Advertising has the effect of increasing demand for any particular good or service because it makes increases the consumer base, meaning that potential consumers are convinced to buy the good or service thanks to being exposed to the advertising.

At first, this higher demand leads to a higher market price because more people are willing to pay for the same amount of the good. However, if the market is free or relatively free, firms will either supply more of the good to meet the rising demand, or new firms will enter the market to cover that demand, causing the market-clearing price to return to previous level, in spite of the higher demand since it has been met by a higher supply as well.