Effect of Selling Costs Oil tile Demand Curve
Selling costs (i,e .. advertising and salesmanship) are likely to induce old buyers to buy more and also to attract new buyers.This means an increase in demand. The new demand curve representing an increase in demand will be above the old curve or to the right of it. But it is not sure whether Ute new curve will have the same elasticity as the old one. It will depend on the buying habits of the new customers. In case they are sensitive to price changes. it will be 1II0re elastic, otherwise less elastic than the old curve. If the new customers arc fully and permanently convinced of the superiority of the product. the new curve will be less clastic in Ute upper segments because price can be safely raised. If. on the other hand. the customers feel they can afford to purchase it only at lower prices. the new curve will be more elastic than the old one in the lower regions,money and effort on advertising can alter or shirt the demand curve. Persuasive advertisement usually result in increasing sales by attracting the attention of a large number of prospective buyers. The aim is to increase the sales of one finn at the expense of the other firms. The effect of advertisement may be (a) to increase the sales and (b) to make the demand lor the commodity less elastic. But the producer iv more Interested in increasing thc sales by shifting. the Edmund curve to the right. If he can lower the elasticity 01 demand, he can raise the price and thus increase his profit. In case hc cannot reduce elasticity, he can increase hl~ ,alc~ by lowering the price. “The most reasonable result tn expect will be that elasticity of demand will fall. that the volume of demand will increase somewhat at cadi once and that price and output will therefore both increase a result of the advertising campaign