What Is a Demand Schedule?
In economics, a demand schedule is a table that shows the quantity demanded of a good or service at different price levels. A demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents quantity.
- Analysts can estimate the demand for a good at any point along the demand schedule.
- Demand schedules, used in conjunction with supply schedules, provide a visual depiction of the supply and demand dynamics of a market.
- Demand schedules are used to forecast the raw materials and labor needed during manufacturing should management decide to sell goods at one price over another.
- Demand schedules inform management of the elasticity of a product, the response in demand of a good based on changing prices.
- Demand schedules do have limitations, as they must be continually revised to match true market expectations as well as they do not incorporate non-financial impacts to demand.
Understanding Demand Schedules
A demand schedule most commonly consists of two columns. The first column lists a price for a product in ascending or descending order. The second column lists the quantity of the product desired or demanded at that price. The price is determined based on research of the market.
When the data in the demand schedule is graphed to create the demand curve, it supplies a visual demonstration of the relationship between price and demand, allowing easy estimation of the demand for a product or service at any point along the curve.
A demand schedule tabulates the quantity of goods that consumers will purchase at given prices.
Demand Schedules vs. Supply Schedules
A demand schedule is typically used in conjunction with a supply schedule, which shows the quantity of a good that would be supplied to the market by producers at given price levels. By graphing both schedules on a chart with the axes described above, it is possible to obtain a graphical representation of the supply and demand dynamics of a particular market.
In a typical supply and demand relationship, as the price of a good or service rises, the quantity demanded tends to fall. If all other factors are equal, the market reaches an equilibrium where the supply and demand schedules intersect. At this point, the corresponding price is the equilibrium market price, and the corresponding quantity is the equilibrium quantity exchanged in the market.
Additional Factors on Demand
Price is not the sole factor that determines the demand for a particular product. Demand may also be affected by the amount of disposable income available, shifts in the quality of the goods in question, effective advertising, and even weather patterns.
Price changes of related goods or services may also affect demand. If the price of one product rises, demand for a substitute may rise, while a fall in the price of a product may increase demand for its complements. For example, a rise in the price of one brand of coffeemaker may increase the demand for a relatively cheaper coffeemaker produced by a competitor. If the price of all coffeemakers falls, the demand for coffee, a complement to the coffeemaker market, may rise as consumers take advantage of the price decline in coffeemakers.
Importance of a Demand Schedule
Demand schedules play an important part in economics in projecting future economic activity and for management to predict how their product(s) will perform. For this reason, there are many different aspects of value to a demand schedule.
- Demand schedules drive pricing decisions. Companies can aggregate data and analyze where the price point makes the most sense for the demand they want to achieve in the market. The ultimate price a consumer pays for the good they want is often dictated by the relationship between points along this demand schedule.
- Demand schedules inform of elasticity. Though it's really the underlying data that drives the information, demand schedules clearly communicate whether products are elastic or inelastic. An elastic product can have its price materially changed without a major impact on the demand for the good. Inelastic goods may suffer severe declines during price increases, though. This information better informs management of how to handle pricing strategy.
- Demand schedules lead manufacturing estimates. Once a company has selected its price point, the company can then use the demand schedule to understand how many units it expects to sell over time. This means the company can better forecast what raw materials, equipment, and labor it will need at what times to deliver expectations to the market. This may also allow the company to plan ahead and lock into favorable pricing knowing there may be a certain level of demand at given points in time.
- Demand schedules translate to other products. Once a company better understands the market and its specific consumer base, the company can leverage that information to other products. This includes forecasting what may happen if the company launches a brand-new product or line in the future.
Some demand schedule curves are not gradual. Consider a gift card for $100. If a company sells it for less than $100, demand will be substantially higher. If a company sells it for more than $100, there theoretically be no financial demand for the gift card (unless there are other factors to consider such as charitable donations).
Limitations of a Demand Schedule
There are several downsides to a demand schedule. Though the law of demand is primarily focused on a good's price, there are other factors that may cause changes in the demand for a product such as consumer preference, product utility, market innovation, and global circumstances such a weather.
Demand schedules also face the risk of obsolescence and being outdated if they are not periodically reviewed. For example, consider the latest iPhone model and the potential demand schedule for the good. Upon the announcement of the next iPhone model, there may be immediate implications to the demand schedule of the prior version. By extension, the demand schedule is handcuffed to the demand curve, and the demand curve does shift based on external factors.
Last, the demand schedule is simply a forecast. There's no way of knowing the projections will actually materialize until a product is brought to market, time passes, and data can be analyzed. Companies would be best suited on comparing forecast demand schedules with actual demand schedules to ensure they are continually learning from prior estimates.
Example of a Demand Schedule
Consider an example of a company trying to determine the best pricing strategy for its brand new 40" 4K HDTV. The company has performed market analysis including conducting surveys of potential consumers and has pulled together the following demand schedule.
|Demand Schedule, Example (Market Only)|
|Price per TV||Estimated Demand|
From this curve, the company realizes there is substantial demand for the product as the price decreases (which is standard for the law of demand). However, the company is disappointed in how quickly the demand curve appears to have dropped off once the television is priced at greater than $1,000. It decides to do another market survey, but this time is approaches two geographical markets.
|Demand Schedule, Example (Two Markets)|
|Price per TV||Estimated Demand (Market 1)||Estimated Demand (Market 2)|
Several conclusions can be pulled from this second demand schedule. First, the demand curve is much less steep; consumers in the second market don't dramatically have more demand for the TV as the price declines like the first market. The other main takeaway is that demand is simply lower. For this reason, the company could leverage this information to (1) attempt to sell fewer TVs in the second market at a higher price point and (2) attempt to sell more TVs in the first market at a lower price point.
What Information Does a Demand Schedule Show?
A demand schedule is meant to inform a manufacturer, distributor, or retailer of consumer demand for a product at different price points. This information may or may not incorporate a time series where the demand schedule can be tracked over time. Alternatively, a demand schedule from different markets may be compiled and shown against each other for comparative analysis.
What Are the 2 Types of Demand Schedules?
Demand schedules may be prepared for individual consumers or for the broad, general market. These two demand schedules will differ as the market demand schedule will encompass a more broad set of expectations while an individual demand schedule may be more refined into a specific subset of data.
What Are Demand Schedules Used for?
Demand schedules are used to make manufacturing plans, forecast sales, ensure appropriate resources are on hand to meet demand, and to set pricing strategies. The demand schedule summarizes the economic impact of how rising prices can influence the demand of a good (and vice versa).
The Bottom Line
A demand schedule is a series of points that identify what consumer demand will be for a product at different price points. Businesses use this information to make smarter business decisions, as sometimes it is not always in the best interest to simply try and sell a product for the highest possible price. This information from a demand schedule also informs management of selling, manufacturing, and delivery needs in the future.