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Elective microeconomics for business

microeconomics for businessTU Board 2082

Define advertisement elasticity of demand.

2

Answer

· Based on the official syllabus and past papers
Updated

Advertisement elasticity of demand measures the responsiveness of the quantity demanded of a product to changes in advertising expenditure. It is calculated as the percentage change in quantity demanded divided by the percentage change in advertising expenditure.

Mathematically, it is expressed as:

Where:

  • is the advertisement elasticity of demand.
  • A value of indicates that demand is elastic with respect to advertising (a small change in advertising expenditure leads to a larger change in quantity demanded).
  • A value of indicates inelasticity (demand changes less proportionately than advertising expenditure).
  • If , demand is unit elastic.

This concept helps businesses determine the optimal level of advertising expenditure to maximize sales and profitability.

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