Cross Elasticity Advertising Elasticity

Prepared by :1) Rahul Kachhva 16 2) Archana Kharat 17 3) Amol Khatake 18 4) Janhavi Khatavkar 19 5) Pranit Khot 20 MMS I year Division - A

The Concept of Elasticity

The responsiveness of one variable to changes in another When price rises, what happens to demand? Demand falls BUT! How much does demand fall?
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If price rises by 10% - what happens to demand?

* We know Demand will fall :- By more than 10%? - By less than 10%? - Elasticity measures the extent to which demand will change.
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Elasticity
- 4 Basic Types used Price elasticity Income elasticity Cross elasticity Advertising or Promotional Elasticity Substitution Elasticity

What is Cross Elasticity ?

The degree of change in the demand for one product as a response to a change in the price of a different product.

Examples
Substitute Products Tea & Coffee When price of tea rises, demand for coffee increases & vice-versa Complement Products When price of cars falls, demand for petrol increases.
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Types of Cross Elasticity

Cross Elasticity of Demand Cross Elasticity of Price

Cross Elasticity of Demand

The responsiveness in the quantity demand of one good when a change in price takes place in another good.

If cross elasticity is positive, the goods are said to be substitutes; if negative, the goods are complements.
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Cross Elasticity of Prices

If commodities are interrelated, a change in the price of one commodity may cause a change in the price of the other. _______________________________ - For substitutes, C.E. of price is positive & - For complements, it is negative.
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How can businesses make use of the concept of cross price elasticity of demand? 1) Pricing strategies for substitutes :2 airlines competing on a given route will have to consider how one airline might react to its competitors price change. - Will many consumers switch? - Will they have the capacity to meet an expected rise in demand? - Will the other firm match a price rise? Will it follow a price fall? 12

Contd

2) Pricing strategies for complementary goods :Eg:- Popcorn, soft drinks and cinema tickets have a high negative value for cross elasticity they are strong complements. We always think of these complements !!!

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Advertising Elasticity
The effect of advertising activities on demand for particular commodity. Its about the way in which advertising affects consumer buying behavior.

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Advertising Elasticity of Demand Advertising elasticity of demand is the measure of the rate of change in demand due to change in advertising expenditure The amount of change in demand of goods due to advertisement is known as Advertisement Elasticity of Demand .
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Advertising Elasticity of Demand

Proportionate change in Demand for product

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Advertising Elasticity = of Demand

Proportionate change in Advertising expenditure

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Factors Affecting Advertising Elasticity of Demand

The stage of the Products Market Development . Reaction of market Rival Firms. Cumulative Effect of Past Advertisement. Influence of other Factors.
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Conclusion
Advertising has come to occupy a crucial role in modern economics. But at the same time management has social responsibility towards minimizing the undesirable implications of advertising. They must realize that advertising cannot sell a defective product. In short there are many other factors which also affects the demand.
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THANK YOU
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