Advertising and Its Effect on the Demand Curve
THE UNIVERSITY OF QUEENSLAND
ECON7002
Markets in Action
Advertising and its effect on the demand curve
Markets in Action
Advertising and its effect on the demand curve
Advertisement has always been an important market strategy for firms to accomplish their goals. From cereal companies to airline companies, it is inevitable to go through the process of advertising. However, what purpose does advertising serve for consumers and suppliers in the market? In this report, it is to examine the relationship between advertising and the market demand curve. Moreover, the impact that advertising brings toward the consumers and the company supplying the product or service.
It is no doubt that peoples’ income is always limited relatively to peoples’ wants. Consumers therefore have to make choices among different products and services (P&S) to satisfy their unlimited wants with limited income. Firms take advantage of this issue by advertising the P&S they produce to increase their profits. There are two primary motives for companies to advertise their products and services. The first motive is to shift the demand curve to the right, meaning an increase in market demand for a product/service. The second motive is to lower the elasticity of the demand curve, meaning the demand for a product/service is less affected when the price of that product/service changes (Sloman, Norris & Garratt 2010).
There are a number of reasons that causes a demand curve to shift to the right. In the case of advertisement, changing the preferences and tastes of the consumers can have a significant effect on demand. By enhancing the taste and preference of consumers, it draws new and inexperienced customers to purchase the product/service (Acharyya & Mukherjee 2003). Therefore, advertising brings a firm’s product/service to more people’s attention and increases the people’s desire for purchasing it. Advertisements can also eliminate the possible limitations in the
ECON7002
Markets in Action
Advertising and its effect on the demand curve
Markets in Action
Advertising and its effect on the demand curve
Advertisement has always been an important market strategy for firms to accomplish their goals. From cereal companies to airline companies, it is inevitable to go through the process of advertising. However, what purpose does advertising serve for consumers and suppliers in the market? In this report, it is to examine the relationship between advertising and the market demand curve. Moreover, the impact that advertising brings toward the consumers and the company supplying the product or service.
It is no doubt that peoples’ income is always limited relatively to peoples’ wants. Consumers therefore have to make choices among different products and services (P&S) to satisfy their unlimited wants with limited income. Firms take advantage of this issue by advertising the P&S they produce to increase their profits. There are two primary motives for companies to advertise their products and services. The first motive is to shift the demand curve to the right, meaning an increase in market demand for a product/service. The second motive is to lower the elasticity of the demand curve, meaning the demand for a product/service is less affected when the price of that product/service changes (Sloman, Norris & Garratt 2010).
There are a number of reasons that causes a demand curve to shift to the right. In the case of advertisement, changing the preferences and tastes of the consumers can have a significant effect on demand. By enhancing the taste and preference of consumers, it draws new and inexperienced customers to purchase the product/service (Acharyya & Mukherjee 2003). Therefore, advertising brings a firm’s product/service to more people’s attention and increases the people’s desire for purchasing it. Advertisements can also eliminate the possible limitations in the