Advertising's Effect on the Market Demand Elasticity: A Note

Agribusiness: An International Journal, Vol. 20, pp. 181-188, 2004

Posted: 4 Nov 2007

See all articles by Henry W. Kinnucan

Henry W. Kinnucan

Auburn University

Yuqing Zheng

University of Kentucky - College of Agriculture - Department of Agricultural Economics

Abstract

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

Kinnucan, Henry W. and Zheng, Yuqing, Advertising's Effect on the Market Demand Elasticity: A Note. Agribusiness: An International Journal, Vol. 20, pp. 181-188, 2004, Available at SSRN: https://ssrn.com/abstract=1026582

Henry W. Kinnucan (Contact Author)

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

Yuqing Zheng

University of Kentucky - College of Agriculture - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

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