Wiley CPAexcel Exam Review 2014 Focus Notes: Business Environment and Concepts

Focus on: Economics, Strategy, and Globalization—Module 42

ECONOMIC CONCEPTS

Demand Curve

As the price of a product increases, the quantity demanded by buyers decreases. This is reflected by a demand curve that is plotted with quantity demands on the x-axis (horizontal) and price on the y-axis (vertical):

Demand Curve Shifts

When some variable other than the price of the product causes demand to change, it is referred to as a demand curve shift.

Positive shift—An increase in demand at each price (the line moves to the right)

Negative shift—A decrease in demand at each price (the line moves to the left)

This is an illustration of a positive demand curve shift:

Positive Demand Curve Shift

Certain factors have a direct relationship to the demand curve for a product (an increase in that factor will cause the demand curve to have a positive shift to the right):

• The price of substitute goods—When another product may be an acceptable alternative, an increase in its price will make the present product more attractive. For example, an increase in the price of hamburgers will cause a positive shift in the demand for hot dogs.
• Expectations of price increases—Consumers are more likely to buy now if they think prices will be going up in the future.
• Consumer income and wealth—For normal goods ...