Advertising Elasticity Of Demand - AED


DEFINITION of 'Advertising Elasticity Of Demand - AED'

A measure of a market's sensitivity to increases or decreases in advertising saturation. Advertising elasticity is a measure of an advertising campaign's effectiveness in generating new sales. It is calculated by dividing the percentage change in the quantity demanded by the percentage change in advertising expenditures. A positive advertising elasticity indicates that an increase in advertising leads to an increase in demand for the advertised good or service.

BREAKING DOWN 'Advertising Elasticity Of Demand - AED'

The impact of an increase in advertising expenditures has on sales varies by industry. For example, a commercial for a fairly inexpensive good, such as a hamburger, may result in a quick bump in sales. On the other hand, advertising a piece of jewelry may not see a pay back for a period of time because the good is expensive and is less likely to be purchased hastily.

Because a number of outside factors, such as the state of the economy and consumer tastes, may also result in a change in the quantity of a good demanded, the advertising elasticity of demand is not the most accurate predictor of advertising's effect on sales.

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