Theory of Economic Information - Definition of Advertizing Elasticity
Inna Borodina, Professor, Russian Federation, Member
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 )