You own a small bookstore. You have hired a marketing firm to calculate your own price elasticity of demand and your advertising elasticity of demand. The firm has provided you with the relevant numbers regardless of minor adjustments in price or advertising budget. Your own price elasticity of demand is around -1.7, and your advertising elasticity of demand is around 0.05. Interpret the advertising elasticity of demand.
A)A one-percent increase in advertising expenditures will stimulate demand by about five-hundredths of one percent.
B)A one-percent increase in advertising expenditures will stimulate demand by about five-tenths of one percent.
C)A one-percent increase in advertising expenditures will stimulate demand by about five percent.
D)A one-percent increase in advertising expenditures will stimulate demand by about one-fifth of one percent

Question

Quizplus · Accepted Answer

The advertising elasticity of demand of 0.05 means that a one-percent increase in advertising expenditures will lead to a 0.05 percent increase in demand, which is equivalent to five-hundredths of one percent.

You Own a Small Bookstore