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AED: Interpreting the advertising elasticity of demand

The aim of this question is to interpret the advertising elasticity of demand.

What are the consequences for the firm with an AED of +0.3, if the level of advertising was decreased by 10%? (select one answer)

(a) unmarked questiondemand would shift to the left and total revenue would fall
(b) unmarked questiondemand would shift to the left and total revenue would increase
(c) unmarked questiondemand would shift to the right and total revenue would fall
(d) unmarked questiondemand would shift to the right and total revenue would increase

Given the following settings, What are the consequences for the firm if the AED is +1.2 and advertising expenditure was increased by 20%?; Try This

  • Original level of advertising = 100
  • Original quantity = 100
  • Original price = 20
  • Costs per unit = 6

(Type your answer to the previous question in the box below, then click on explain)

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