The connection between how much companies spend on advertising and how consumers react to prices is pretty interesting. It shows just how important advertising is when it comes to how people see products.

What is Demand Elasticity?
Demand elasticity is a way to measure how much the amount people want to buy changes when the price goes up or down.

There are different categories for goods based on this:

• Elastic Demand: This means that if the price changes a little, the amount people want to buy changes a lot.
• Inelastic Demand: Here, even if the price changes, the amount people want doesn’t change much.
• Unit Elastic: This is right in the middle, where the changes in price and demand are equal.

The Importance of Advertising
When companies spend money on advertising, it helps them get noticed and can change what people prefer.

Here’s how advertising helps:

• Building Brand Loyalty: Good advertising makes people feel connected to a brand. This connection can make them stick with a brand, even if the prices go up. This loyalty leads to inelastic demand, meaning people won’t change how much they buy even if prices rise.

• Creating Perceived Value: Advertising can make a product seem more valuable. If customers think a product is worth the price, companies can raise their prices without losing many sales. This also makes people less sensitive to price changes.

In Summary
In the end, spending more on advertising can make demand less elastic. However, it’s important for companies to invest wisely in advertising to boost how well people know the brand and how much they like it. This helps create a stable demand over time.