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Effects of Selling Costs on Demand

Here, we understand the what is selling costs and its effects on Demand in detailed.

EFFECTS OF SELLING COSTS ON DEMAND
First, we understand what is selling costs?
Selling Cost:
Selling cost are those costs which are incurred by a firm to persuade the buyers to buy its product instead of those of the other firms. Selling costs create or increase demand.
Now, we discuss about the effects of Selling Costs on Demand in detailed-
As we know, the purpose of selling costs is to increase the demand for a particular type of product by inducing the existing buyers to buy more and by attracting new buyers. This will affect the demand curve in two ways that is -
  1. Selling costs or advertisement expenditure affects the position or the location of the demand curve.
  2. Secondly, it also affects the shape of the demand curve.
We will discuss both above mentioned ways one by one in detailed.
  1. Effects on the Position of Demand Curve: As the position or the location of the demand curve it can be said the advertisement expenditure has the effect of shifting the demand curve to the right. This is due to result of advertisement expenditure more and more people come to know about the product, its qualities, uses price etc. This mean an increase in demand and consequently the demand curve will go higher. In short, advertisement expenditure shifts the demand curve to the right, as shown in below mentioned figure-1
      As shown in figure, DD is the original demand curve before the firm has advertised for its product. The sales are OB. After the product is advertised the demand increases from OB to OC. It clearly indicates, the demand curve shifts to the right. The new demand curve is D1D1.
  2. Effects on the shape of Demand Curve:
Another effect of selling cost or advertisement expenditure is on the shape of the demand curve. Means, when the firm lowers the price of its product, there is an extension of demand, but if alongwith price reduction, it also incurs selling costs or advertisement expenditure, the increase in the quantity demanded will be much more. It indicates the demand curve become more elastic. Thus, price reduction alongwith the advertisement expenditure tends to make the demand curve more elastic. This will be clear from Figure-2
As shown in above figure-2, when the price is OA, the total sale of the firm is OB and DD is the original demand curve. The firm reduces the price of its product from OA to OC. Now, suppose if no advertisement expenditure is incurred, the sales increase only slightly from OB to OE, but if alongwith price reduction, the firm also incurs advertisement expenditure, there is a substantial increase in the sales from OB to OF. Thus, the effect of the advertisement expenditure is to alter the shape of the demand curve by making it more elastic. D1D1 is the new demand curve which is more elastic than the original demand curve DD.
It can be said that advertisement expenditure increases the demand for the product of a firm. It changes the position and shape of the demand curve. As said above, the effect of advertisement expenditure on demand curve is that it tends to move towards the right and secondly, it tends to become more elastic. But it is difficult to say in advance how much will the demand curve shift to the right or how much will it be more elastic than the old demand curve.
Effects of Selling Costs on Demand
What is Selling Costs?
Selling cost or advertisement expenditure affects the position or the location of the demand curve
It also affects the shape of the demand curve.
Selling Costs - Effects of Selling Costs on Demand.
Kinnari
Tech writer at NewsandStory
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