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Advertising's effect on the market demand elasticity: A note

Author

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  • Henry W. Kinnucan

    (Department of Agricultural Economics and Rural Sociology, Auburn University, Auburn, Alabama 36849. E-mail: hkinnuca@acesag.auburn.edu)

  • Yuqing Zheng

    (Department of Agricultural Economics and Rural Sociology, Auburn University, Auburn, Alabama 36849. E-mail: zhengyu@auburn.edu)

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. [JEL citations: Q130, Q170, Q180.] © 2004 Wiley Periodicals, Inc. Agribusiness 20: 181-188, 2004.

Suggested Citation

  • Henry W. Kinnucan & Yuqing Zheng, 2004. "Advertising's effect on the market demand elasticity: A note," Agribusiness, John Wiley & Sons, Ltd., vol. 20(2), pages 181-188.
    • Handle: RePEc:wly:agribz:v:20:y:2004:i:2:p:181-188
    DOI: 10.1002/agr.20004
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    References listed on IDEAS

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    5. Brown, Mark G., 2008. "Impact of Income on Price and Income Responses in the Differential Demand System," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(2), pages 1-16, August.

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