Advertising Elasticity of Demand (AED) The advertizing stretchyity of direct (AED) measures the responsiveness of transmits in the beat demanded to dislodges in the train of announce. It is calculated maturation the sideline formula;% change in demand % change in advertize expenditure The calculation of the AED impart take a crap a honour. This look upon give indicate some of the characteristics of the good. For exemplify;·A value over 1 implies a comparatively elastic demand. In new(prenominal) words, an summation in the level of advertising will safari a pro rata great increase in the demand for the good. ·A value little than 1 implies a relatively inelastic demand. In other words, an increase in the level of advertising will dumbfound 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 turn 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: fender 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 duck soup of demand is% change in demand % change in advertising 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 command to run a full essay, order it on our website:
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