Price Elasticity of Demand

Flashcards covering key concepts related to price elasticity of demand, factors influencing it, and its calculation, based on the provided lecture notes.

Why would demand for a Fuji apple be considered price elastic?

Because defining the market very narrowly (Fuji apple) introduces a vast amount of substitutes.

What happens to price sensitivity when there are many perfect substitutes for a product?

Price sensitivity is extremely high, making demand very price elastic.

Pertaining to price elasticity of demand, if price falls by 10% and price sensitivity is relatively low, what can be inferred?

The quantity demanded will not change significantly compared to the price change.

What is the three-step process for computing the price elasticity of demand?

Find the percentage change in quantity, find the percentage change in price, and then divide the percentage change in quantity by the percentage change in price.

How do you find the midpoint of quantity when calculating the percentage change in quantity?

You take the sum of the initial and final quantities and divide it by two.

What characteristic describes perfectly elastic demand, as exemplified by a farmer's wheat?

Demand is extremely price sensitive due to many perfect substitutes, allowing the seller to sell as much as they want at the market price.

Is the slope of a demand curve equivalent to price elasticity of demand?

No, because a demand curve can have a constant slope while its elasticity varies along the curve.