The demand schedule is a systematic presentation of the relationship between the price of a commodity and the quantity demanded by consumers. It shows how much quantity of a good consumers are willing to buy at different prices, assuming other factors remain constant. In simple words, it is a table that indicates various quantities of a commodity that consumers are prepared to purchase at different price levels.
A demand schedule helps in understanding the law of demand in a clear and measurable form. It provides the base for drawing the demand curve and for analysing market behaviour. It is important to understand that a demand schedule is prepared for a specific period, such as a day, a week, or a month, because demand may change over time.
Types of Demand Schedule
A demand schedule can broadly be classified into two types: individual demand schedule and market demand schedule. Understanding the difference between these two is often tested in banking exams.
The individual demand schedule shows the relationship between the price of a commodity and the quantity demanded by a single consumer. It reflects the buying behaviour of one individual at different prices. As the price of a commodity falls, the consumer generally purchases more units, and as the price rises, the quantity demanded decreases. This inverse relationship between price and quantity demanded forms the basis of the law of demand.
For example, if the price of a commodity like tea decreases, an individual consumer may buy more packets of tea because it becomes more affordable. On the other hand, if the price increases, the consumer may reduce consumption or shift to alternatives. This behaviour is captured in the individual demand schedule.
The market demand schedule is obtained by adding up the quantities demanded by all consumers in the market at different price levels. It shows the total demand for a commodity in the entire market. From a banking and economic policy perspective, market demand is more important because decisions related to production, pricing, and policy are based on total demand rather than individual demand.
For instance, if there are many consumers in the market, the market demand at a given price will be much larger than individual demand. Even though individual preferences may differ, the general inverse relationship between price and quantity demanded still holds true at the market level.
Demand Schedule and Law of Demand
The demand schedule clearly explains the law of demand, which states that, other things remaining the same, the quantity demanded of a commodity increases when its price falls and decreases when its price rises. The phrase “other things remaining the same” is very important for exam answers and refers to factors such as income of consumers, tastes and preferences, prices of related goods, and expectations.
When price falls, consumers tend to buy more due to several reasons. The commodity becomes cheaper compared to substitutes, purchasing power of consumers increases, and consumers may increase consumption or attract new buyers into the market. All these reasons together explain why quantity demanded increases as price falls, as reflected in the demand schedule.
Similarly, when price rises, consumers reduce demand because the commodity becomes relatively expensive and their real income is reduced. These changes in quantity demanded due to price changes are shown clearly through the demand schedule.
Assumptions of the Demand Schedule
The demand schedule is based on certain assumptions which are essential to understand. These assumptions help in isolating the effect of price on demand.
- Income of consumers remains constant
- Tastes, habits, and preferences do not change
- Prices of related goods (substitutes and complements) remain unchanged
- There is no change in population
- Consumer expectations about future prices remain stable
If any of these factors change, the demand schedule itself will change, leading to a shift in demand rather than a movement along the demand schedule.
Importance of Demand Schedule
The demand schedule is important because it provides a clear picture of consumer behaviour at different price levels. It helps businesses and policymakers estimate how changes in prices may affect demand. For banks and financial institutions, understanding demand is useful in credit assessment, project appraisal, and forecasting consumption trends in the economy.
The demand schedule is also important because it forms the foundation for concepts like demand curve, elasticity of demand, and market equilibrium. Without understanding the demand schedule, these advanced concepts cannot be properly analysed.
Demand Schedule in Banking and Economic Context
In the context of banking and finance, demand schedules are indirectly used while analysing loan demand, consumer spending patterns, and market potential for various products. For example, when interest rates change, the demand for loans may increase or decrease in a manner similar to price changes in goods. Though interest rate is not a price of a commodity, the concept of inverse relationship remains relevant.
In conclusion, the demand schedule is a fundamental tool in economics that shows the relationship between price and quantity demanded in a structured manner.