Do Advertisements Influence Consumer Behaviour?
Support Your Answer
1. Introduction to Advertising and Consumer Behaviour
Advertising is an essential component of the modern economic system. It acts as a bridge
between producers and consumers, providing information about products, prices, and
features, while simultaneously stimulating demand. In economics, advertising is viewed both
as a cost to firms and a source of utility to consumers, since it helps reduce information
gaps in the market.
According to Soti (2022), advertising “creates awareness and modifies consumer preferences,
leading to increased market demand.”
However, the influence of advertisements is twofold—informative and persuasive.
Informative advertising improves market efficiency by helping consumers make better
decisions, whereas persuasive advertising can alter preferences and create artificial demand.
Thus, advertisements play a significant role in shaping consumer behaviour, altering
demand elasticity, and even influencing market equilibrium by affecting both supply and
demand decisions.
2. Types of Advertisements in the Economic Context
From an economic standpoint, advertisements can be classified into informative, persuasive,
and reminder types.
Informative Advertising provides factual data—price, quality, usage—helping
reduce information asymmetry in markets.
Persuasive Advertising attempts to change consumer tastes, making demand more
inelastic by building brand loyalty.
Reminder Advertising maintains consumer awareness in competitive markets to
ensure repeat purchases.
Economically, firms choose the type of advertising depending on market structure. In
perfect competition, informative ads are more relevant (as products are similar). In
monopolistic competition or oligopoly, persuasive advertising dominates because firms
differentiate products to gain market share.
For example, smartphone companies like Apple or Samsung spend billions on brand-based
ads that create loyalty and reduce price sensitivity—an example of how advertising shifts the
demand curve rightward and makes it steeper.
3. Economic Theories Behind Advertising
Economists have long debated the effect of advertising on consumer behaviour and market
outcomes. There are two main schools of thought:
1. Advertising as Market Information (Informative View):
Proposed by economists like Philip Nelson (1974), this theory argues that advertising
provides useful information to consumers, improving efficiency. It reduces search
costs and helps allocate resources optimally.
2. Advertising as Market Power (Persuasive View):
This theory, supported by Kaldor (1950) and others, sees advertising as a tool that
gives firms monopoly power by manipulating consumer preferences and reducing
price elasticity of demand.
Both views show that advertising can change consumer perception—either by helping
consumers choose wisely or by influencing them emotionally. For example, heavy
advertising in the soft drink industry doesn’t just inform; it builds brand loyalty that allows
firms to charge higher prices.
Thus, advertising can shift demand curves (rightward when demand increases) and make
them steeper (less elastic), depending on its type and purpose.
4. Advertising and Consumer Demand
In economics, demand represents the willingness and ability of consumers to purchase goods
and services. Advertising influences both components:
It increases willingness by creating desire and emotional attachment.
It affects ability indirectly by convincing consumers that the product adds value worth
paying for.
According to Gupta (2022), advertising leads to “higher consumption levels and increased
responsiveness to market trends.”
When successful, advertisements cause a rightward shift in the demand curve, increasing
equilibrium quantity and price. For instance, a well-advertised fashion brand can experience a
surge in demand without reducing prices—demonstrating how ads boost perceived value.
Moreover, advertising can help introduce new products, reducing the time it takes for
consumers to accept them in the market. Economically, this contributes to faster product
diffusion and higher GDP from consumer spending.
5. Advertising and Elasticity of Demand
Elasticity measures how responsive demand is to changes in price. Advertising often aims to
reduce price elasticity of demand—making consumers less sensitive to price changes.
When advertising builds brand loyalty, consumers continue buying even if prices rise. This
creates imperfect competition and gives firms pricing power.
For example, Coca-Cola and Pepsi’s heavy advertising makes customers perceive them as
unique, even though they are substitutes in economic terms.
From a microeconomic perspective, advertising can:
Make demand less elastic (consumers don’t switch easily).
Increase brand differentiation in monopolistic competition.
Lead to higher consumer surplus for firms rather than consumers.
However, in the long run, excessive advertising expenditure can increase costs, shifting the
average cost curve upward, which may raise prices for consumers.
6. Impact on Consumer Decision-Making Process
From an economic behaviour standpoint, advertising affects the five stages of consumer
decision-making:
1. Problem Recognition – Ads highlight needs (“You need this phone to stay
productive”).
2. Information Search – Ads reduce search costs by providing ready comparisons.
3. Evaluation of Alternatives – Persuasive ads bias this process toward the advertised
brand.
4. Purchase Decision – Discounts and offers trigger action.
5. Post-purchase Behaviour – Reminder ads reinforce satisfaction and reduce buyer’s
remorse.
According to Shrivastava et al. (2022), the emotional and visual appeal of advertisements
significantly influences consumer purchase intentions, particularly in the FMCG sector.
Economically, this shows how advertising not only alters tastes but also accelerates
spending cycles, boosting short-term aggregate demand—a factor relevant to
macroeconomics as well.
7. Social Media and Digital Advertising in Modern
Economics
The digital revolution has transformed advertising from a mass-communication tool to a data-
driven economic mechanism.
Digital advertising allows personalised targeting, where algorithms match products to users’
browsing behaviour, increasing ad efficiency. According to Garg & Malik (2022), social
media ads “significantly affect purchasing behaviour, especially among youth segments.”
Economically, this increases market segmentation and improves the allocation of
advertising expenditure. Firms can now reach high-probability buyers instead of spending
on mass audiences, reducing waste and improving marginal returns.
However, digital advertising also raises ethical and privacy concerns. Data collection and
targeted marketing create market power for large tech firms (like Meta and Google), leading
to potential market failures due to monopolistic dominance.
8. Consumer Awareness, Ethics, and Regulation
As advertising grows more persuasive, consumer awareness and regulation become vital
economic considerations.
Governments regulate advertising to ensure consumer protection and market fairness.
Misleading or manipulative ads can distort consumer preferences, leading to inefficient
resource allocation and welfare loss.
For example, over-advertising of unhealthy foods can cause negative externalities—like
obesity or health costs—illustrating how advertising can sometimes diverge private benefit
from social welfare.
Regulatory agencies such as the Advertising Standards Council of India (ASCI) or the
Federal Trade Commission (FTC) in the U.S. help maintain transparency and fairness.
Awareness also influences how much consumers are affected. Educated consumers with
higher information literacy are less likely to be misled by emotional or false advertising.
Thus, in economics, information symmetry between producers and consumers is essential
for a healthy market.
9. Conclusion
In conclusion, advertisements strongly influence consumer behaviour—both positively and
negatively—from an economic perspective. They serve as a stimulus to demand, reduce
information asymmetry, and increase consumer spending, which contributes to GDP growth.
However, advertisements also create brand loyalty and reduce elasticity, potentially giving
firms market power and leading to allocative inefficiency. The overall influence depends on
the type of market, nature of advertisement, and consumer awareness.
Therefore, while advertising is an important economic driver that fuels consumption and
competition, it must be balanced with ethical regulations and consumer education to ensure
that its influence supports—not distorts—economic welfare.
