Question

1) Successful advertising shifts the demand curve of a product. What is the relationship between the shift in the demand curve and the marginal benefit from advertising?

Answer 1

The demand curve shape is determined by overall marginal utility. The advertising affects the tastes and preferences of consumer's in a positive approach, and that leads to an increase in demand (the demand curve will shift up/right). The advertising also costs firms money thus as advertising affects marginal cost, then it will shift supply. It may shift the supply curve towards left (a decline in supply because cost of inputs increased), however it will depend on the type of advertising. If advertising would not affect marginal cost, it would not shift the supply curve.