Advertising Elasticity of Demand (AED) The advertising elasticity of demand (AED) measures the responsiveness of changes in the quantity demanded to changes in the level of advertising. It is calculated using the following formula;% change in demand % change in advertising expenditure The calculation of the AED will produce a value. This value will indicate some of the characteristics of the good. For instance;·A value over 1 implies a relatively elastic demand. In other words, an …showed first 75 words of 284 total…

…showed last 75 words of 284 total…level of advertising = £100Original quantity = 50 unitsNew level of advertising = £120New quantity = 75 unitsIt is evident that a £20 increase in the level of advertising results in a 25 unit increase in the quantity demanded. The advertising elasticity 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.