Business – 8.1 Marketing analysis – Elasticity | e-Consult
8.1 Marketing analysis – Elasticity (1 questions)
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Answer:
| Variable | Initial | New |
| Advertising expenditure (£) | 5,000 | 7,500 |
| Quantity sold (units) | 1,200 | 1,560 |
- Midpoint change in advertising spend:
\(\displaystyle \frac{7,500-5,000}{(7,500+5,000)/2}= \frac{2,500}{6,250}=0.40\) (40%).
- Midpoint change in quantity sold:
\(\displaystyle \frac{1,560-1,200}{(1,560+1,200)/2}= \frac{360}{1,380}=0.2609\) (26.09%).
- Promotional elasticity:
\(\displaystyle \text{PE}= \frac{0.2609}{0.40}=0.652\).
- Interpretation: The absolute value is less than 1, indicating the demand response to advertising is inelastic. The campaign generated sales growth, but the increase in expenditure produced a proportionally smaller rise in quantity demanded, suggesting limited effectiveness.