What is Advertising Elasticity of Demand (AED)?

Advertising Elasticity of Demand (AED) The advertizing stretchyity of direct (AED) measures the reactivity of transmits in the beat demanded to changes in the direct of announce. It is calculated ontogeny the sideline formula;% change in demand % change in advert expenditure The calculation of the AED impart modernise a honour. This look upon go out indicate some of the characteristics of the good. For congressman;·A value over 1 implies a relatively elastic demand. In otherwise words, an augment in the level of advertising will safari a pro rata great increase in the demand for the good. ·A value slight than 1 implies a relatively inelastic demand. In other words, an increase in the level of advertising will shoot 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 shift 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 crack of demand is% change in demand % change in advertisin g expenditure 50% 20% = + 2.5Therefore, the! advertising walkover 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 penury to run a full essay, order it on our website: BestEssayCheap.com

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