Advertising Elasticity of Demand (AED) The advertizing stretchyity of direct (AED) measures the responsiveness of heightens in the beat demanded to transmutes in the aim of announce. It is calculated exploitation the sideline formula;% change in demand % change in denote expenditure The calculation of the AED impart pretend a honour. This look upon provide indicate some of the characteristics of the good. For suit;·A value over 1 implies a relatively elastic demand. In otherwise words, an extend in the level of advertising will safari a pro rata greater increase in the demand for the good. ·A value less(prenominal) than 1 implies a relatively inelastic demand. In other words, an increase in the level of advertising will make in a proportionately smaller increase in the demand for the good. The sign indicates how advertising influences the demand. For most goods, an increase in the level of advertising should cause the demand curve to qualify to the right (D1 to D2).The magnitude of the shift will depend on the value of the AED. For instance, if the AED is relatively elastic (greater than 1) then the change in the quantity demanded will be proportionately larger than the change in the level of advertising.
The following is an example of how to calculate the AED: trustworthy level of advertising = £100Original quantity = 50 unitsNew level of advertising = £120New quantity = 75 unitsIt is ostensible that a £20 increase in the level of advertising results in a 25 unit increase in the quantity demanded. The advertising centering of demand is% change in demand % change in adver tising expenditure 50% 20% = + 2.5Therefore! , the advertising elasticity of demand is 2.5, which is termed as relatively elastic. In other words, a 1% increase in the level of advertising will cause a 2.5% increase in the quantity demanded. If you necessity to run a full essay, order it on our website:
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