Advertising's Effect on the Market Demand Elasticity: A Note
Agribusiness: An International Journal, Vol. 20, pp. 181-188, 2004
Posted: 4 Nov 2007
Using a simple market model and Frisch's duality relation, this report develops propositions about the relationship between advertising and the market demand elasticity that may prove useful in empirical research. In particular, we find that a parallel shift in a linear demand function always alters the market demand elasticity unless supply is unitary elastic. However, the elasticity change in most cases will be negligible. We also find that curve rotation does not imply that the demand elasticity has changed, and vice versa. Lastly, if the price level affects advertising's ability to shift the market demand curve, it must also be true that advertising affects the demand elasticity. The converse is also true, i.e., if advertising affects the demand elasticity, the price level must affect advertising's ability to shift the demand curve.
Keywords: Advertising, Demand Elasticity, Demand Rotation
JEL Classification: Q130, Q170, Q180
Suggested Citation: Suggested Citation