Premium
Advertising's effect on the market demand elasticity: A note
Author(s) -
Kinnucan Henry W.,
Zheng Yuqing
Publication year - 2004
Publication title -
agribusiness
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.57
H-Index - 43
eISSN - 1520-6297
pISSN - 0742-4477
DOI - 10.1002/agr.20004
Subject(s) - demand curve , elasticity (physics) , price elasticity of demand , economics , converse , supply and demand , microeconomics , price elasticity of supply , cross elasticity of demand , econometrics , mathematics , materials science , geometry , composite material
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. [JEL citations: Q130, Q170, Q180.] © 2004 Wiley Periodicals, Inc. Agribusiness 20: 181–188, 2004.