Question

The supply and demand curves show data for trendy smartphone covers. How would the graph change if the producer hired a popular actor as spokesperson for the product?
A) Add D2 to the right of D, showing a decrease in demand and increase in equilibrium price.
B) Add D2 to the right of D, showing an increase in demand and increase in equilibrium price.
C) Add D2 to the left of D1, showing a decrease in demand and decrease in equilibrium price.
D) Add D2 to the left of D1, showing an increase in demand and decrease in equilibrium price.

Answer 1

Answer: The correct answer is option B; Add D2 to the right of D, showing an increase in demand and increase in equilibrium price.

Explanation: The demand for a commodity is usually affected either positively or negatively by some factors or determinants. Foremost among the factors of demand is price of the commodity. Other factors include;

(a) Price of substitute commodities

(b) Consumers preferences

(c) Population

(d) Weather conditions

(e) Advertising

In the question above, the use of a popular actor as the spokesperson of the product is a form of advertising that is intended to improve upon the perception of the commodity and hence encourage consumers to buy more of it. If the popular personality endorses a product, there is an almost one hundred percent likelihood that consumers would see the product as a preferred choice and this would cause the demand to go up or increase.

An increase in the market demand would be signified by the outward shift of the demand curve to the right from D to D2. Since the x-axis shows the quantity demanded increasing towards the right hand side, then an increase in market demand would be reflected by a shift of the demand curve to the right.

As a result of that, the price would now move from P to P2 which shows an increase in equilibrium price. Also the quantity demanded would move from Q to Q2 which also indicates an increase in demand.