Theory of Economic Information - Definition of Advertizing Elasticity

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Inna Borodina, Professor, Russian Federation
The percentage increase in demand divided by the percentage increase in advertising spending is NOT a valid definition of advertising elasticity. Get rid of illusions... E = (dD/D) / (dZ/Z) In this formula:E = Elasticity D = Demand Z = Cost of advertising (the ratio of instantaneous increments - differential equations) Elasticity shows the percentage change in demand for a dollar spent. Advertising effectiveness - show change the price of demand. D(Z, P) = D(P)(1+D(Z)) In this formula: D(P) = Price demand D(Z) = Advertising demand D(Z, P) = Demand for goods. If D(Z,P) > D(P) then there is positive efficiency If D(Z,P) < D(P) then there is negative efficiency If D(Z,P) = D(P) then there is no inpact. For more information, read articles by Stigler (The Theory of Economic Information ) (...) Read more? Sign up for free

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