Advertisement Elasticity of Demand (ea)
Advertisement or promotional elasticity of demand (EA) is the ratio of percentage change in quantity demanded (Q) to a percentage change in advertisement outlay (A).
EA = (ΔQ/ΔA).A/Q
The greater the promotional elasticity, the more will be the incentive to go in for advertising. The advertisement elasticity of sales varies between zero to infinity.
1. If EA = 0, then sales do not respond to the advertisement expenditure.
2. When EA < 1 is positive, then sales increase in proportionately lesser degree than the increase in advertisement outlay.
3. Sales increase in equal proportion to advertisement outlay if EA = 1.
. When EA > 1 then sales increase more than proportionately to the increase in advertisement budget.
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