Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then:
A) The supply curve will shift to the left
B) The demand curve will shift to the right
C) Both the new equilibrium price and quantity will be lower
D) The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower

Question

Refer to the graph above. Suppose consumers do not fully appreciate the benefits of the product whose market shown in the graph. If an external agency is able to provide full information about the benefits of the product, then:
A) The supply curve will shift to the left 
B) The demand curve will shift to the right 
C) Both the new equilibrium price and quantity will be lower 
D) The new equilibrium price will be higher but the equilibrium quantity will be either higher or lower

Quizplus · Accepted Answer

If consumers do not fully appreciate the benefits of the product, then they may not demand as much of it at any given price. Thus, the demand curve would be lower than it would be if consumers fully understood the benefits. If an external agency is able to provide full information about the benefits of the product, then consumers' willingness to pay for it will increase, which will cause the demand curve to shift to the right. This will lead to a higher equilibrium price and quantity than before. Therefore, option B is the correct answer.

Refer to the Graph Above