Answer:
20%
Explanation:
Given that
Advertising elasticity of demand = 0.25
Quantity demanded = 5% increase
Recall that
Elasticity = change in demand/change in advertising
That is
Change in advertising = Change in demand / elasticity of production
Therefore, change in advertising
= 5/0.25
= 20%
Advertising must increase by 20% in order to increase demand by 5%
Answer:
Increase the advertising by 20% in order to increase demand by 5%
Explanation:
Demand for a product is elastic when a change in price causes change in the demand for that product.
When the change in price doesn't change the demand of the product then the demand for the product is inelastic.
The elasticity of demand is calculated
Elasticity of demand = Change in demand / Change in advertising
Change in advertising = Change in demand/Elasticity of demand
We want to increase the demand by 5% and the elasticity of demand is 0.25
Change in advertising = 0.05/0.25
Change in advertising = 0.20*100%
Change in advertising = 20%
Therefore, we have to increase advertising by 20% in order to increase demand by 5%
