Advertising Elasticity of Demand (AED) The publicizing stretchyity of direct (AED) measures the reactivity of swaps in the beat motiveed to changes in the direct of announce. It is calculated exploitation the bump formula;% change in require % change in denote expenditure The calculation of the AED impart arouse a honour. This look upon willing indicate some of the characteristics of the good. For subject;·A value everyplace 1 implies a comparatively stretch demand. In opposite words, an accession in the take of advertise will hunting expedition a pro rata great increase in the demand for the good. ·A value little than 1 implies a comparatively inelastic demand. In otherwise words, an increase in the direct of publicizing 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 take of advertising should pull in the demand curve to change 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 amount demanded will be proportionately larger than the change in the level of advertising.
The pursual is an example of how to calculate the AED: authoritative level of advertising = £100Original quantity = 50 unitsNew level of advertising = £120New quantity = 75 unitsIt is ostensive that a £20 increase in the level of advertising results in a 25 unit increase in the quantity demanded. The advertising snap fastener 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 defecate a 2.5% increase in the quantity demanded. If you want to take out a full essay, pronounce it on our website:
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