Question

Suppose you own a pet shop. Your sales are decent but a marketing consultant tells you that you could increase your sales and be able to charge a higher price if you spend some money on local television ads. If the consultant is right, will advertising lead to an increase in quantity demanded? Or a shift in the demand curve? Both? Neither? Explain your answer and make sure to cite at least one of the required readings in your answer.

Answer 1

Advertising is likely to popularise the product so you will experience a surge in the number of consumers to your shop as a result of advertising. A demand function is drawn for price and quantity demanded and you have not changed the price yet. Hence more consumers imply an increase in demand which shifts the demand to the right. This will give you an opportunity to charge a higher price as the willingness to pay by consumers will increase as a result of advertising.

With higher prices, there will be some reduction in quantity demanded as well but eventually you will be able to sell more and charge a higher price.