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Advertising, Price, Cost, Supply and Demand Curve

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o Advertising can inform buyers, but sellers must incur costs to advertise. If so, advertising can result in higher prices to consumers. Does this mean advertising is economically inefficient? If not, explain how it can simultaneously create value
and increase market prices.

o Following are observations on the market price and the quantity of good X produced and consumed in three different years: $10 and 100 units, $4 and 57 units, and $8 and 88 units. Can we conclude that the market demand for X slopes upward?

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Solution Summary

The solution discusses advertising costs and economic efficiency brought by it It shows that advertising does not necessarily result in higher prices to consumers.
The other query calls for the behavior of the market demand and market supply.

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On Advertising and Price

The study of Benham (1972) showed that "prices [of eyeglasses] were found to be substantially lower in states which allowed advertising".

This is corroborated by Ferguson (1982) when he wrote that advertising does not increase prices. He further commented that consumers are more at a disadvantaged situation in the absence of advertising : "... the cost to consumers of choosing products by using alternative sources of source of information in the absence of advertising exceeds the cost of using advertising".

Another study by Capella,et. al (n.d.) empirically analyzed that "advertising did not ...

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