The advertisement elasticity of demand is a degree of responsiveness of a change in the sales of a product with respect to a proportionate change in advertisement expenditure. Show
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Every organisation spends a certain amount on advertisement and other promotional activities with an aim to create awareness among customers and boost sales. The effectiveness of elasticity of demand decides the sales of an organisation. Thus, is it important for the organisation to determine how advertisements affect its sales. By measuring the advertisement elasticity of demand, an organisation can determine optimum level of advertisement expenditure under various situations, such as government’s restrictions on the cost of advertisement and high competition. Advertisement Elasticity of Demand FormulaThe advertisement elasticity of demand (eA) can be calculated using the following formula: eA = Percentage Change in quantity demanded Mathematically, advertisement elasticity (eA) can be expressed as: eA = (∆Q /∆A) X (Q/A) Where, Q is the original quantity demanded Advertisement Elasticity of Demand ExampleSuppose the advertisement expenditure of an organization Solution:
Here, The formula for calculating the advertisement elasticity of demand is: eA = (∆D /∆A) X (D/A) Substituting the values in the formula eA = (30000 /35000) X (40000/25000) = 1.2 (greater than one) The advertisement elasticity of demand ranges from eA = 0 and eA = ∞, which is shown in Table:
Factors Affecting Advertisement Elasticity of DemandThe concept of advertisement elasticity of demand is an important aspect especially while making decisions related to promotional activities. The advertisement elasticity of demand is influenced by a number of factors. Some of these factors affecting advertisement elasticity of demand are explained as follows:
Product launchGenerally, at the time of a new product launch in the market, the advertisement elasticity of demand is greater than unity. This is because at that time the aim of the advertisement is to create awareness of the product among customers. After the sales goes up, the advertisement elasticity of demand decreases. On the contrary, once the product is well-established in the market, the aim behind advertising is to attract new customers and create additional demand. In this case, the advertisement expenditure increases while an increase in demand is less. Advertisement by competitorsAdvertisement elasticity of demand is influenced by advertisements being produced in the market by competitors. In a highly competitive market structure, the effectiveness of the advertisement of an organisation is determined by the amount spent and effectiveness of advertisements of its competitors. Also Read: Price Elasticity of Demand Business Economics Tutorial(Click on Topic to Read)
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What do you mean by advertising elasticity of demand?Advertising Elasticity of Demand (AED) is a measure of effectiveness of increase in expenditure of advertising in increasing demand of a product. AED is always positive, meaning that the demand always increases with increase in advertising expenditure.
What are the factors influencing elasticity of demand?The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed.
What are the 4 types of elasticity of demand?Four types of elasticity are demand elasticity, income elasticity, cross elasticity, and price elasticity.
What are the types of advertising elasticity of demand?Relatively Inelastic Demand (EA<1). |
What is advertisement elasticity of demand what are the factors influencing advertising elasticity of demand?
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