PROMOTIONAL ELASTICITY OF DEMANDS

Presented byBharat Kumar Sahoo

Advertisement-Expenses for increase sale

Degree of responsiveness of quantity demand (sales) to

change in advertisement expenditure

Mathematically,

2 cases

eA>1 & eA<1

Change in Q due to change in A

2009-10

2010-11

0

5000000

10000000

15000000

20000000

25000000

30000000

35000000Adv cost

2009-10

2010-11

0

100000

200000

300000

400000

500000

600000

700000Qty change

CalculationQ=400000A=20000000Q1=650000A1=30000000

AED=Δq/Δa × a/q 250000/10000000 × 20000000/400000

=1.25

eA>1,so producer should go for a heavy advt. expenditures

CalculationQ=400000A=20000000Q1=750000A1=40000000

AED=Δq/Δa × a/q 350000/20000000 × 20000000/400000

=0.87

EA<1,so producer shouldn’t go for a heavy advt. expenditures

conclusionSo we can conclude that advertisement puts a great effect on quantity demand. It plays a crucial role in decision making regarding the expenses of a company towards advertisements.