The Demand Schedule and the Demand Curve

A demand schedule shows how much of a good or service consumers will want to buy at different prices.

A demand schedule is a table showing how much of a good or service consumers will want to buy at different prices. At the right of Figure 3-1, we show a hypothetical demand schedule for natural gas. It’s expressed in BTUs (British thermal units), a commonly used measure of quantity of natural gas. It’s a hypothetical demand schedule—it doesn’t use actual data on American demand for natural gas.

The Demand Schedule and the Demand Curve The demand schedule for natural gas yields the corresponding demand curve, which shows how much of a good or service consumers want to buy at any given price. The demand curve and the demand schedule reflect the law of demand: as price rises, the quantity demanded falls. Similarly, a fall in price raises the quantity demanded. As a result, the demand curve is downward sloping.

The quantity demanded is the actual amount of a good or service consumers are willing to buy at some specific price.

According to the table, if a BTU of natural gas costs $3, consumers around the world will want to purchase 10 trillion BTUs of natural gas over the course of a year. If the price is $3.25 per BTU, they will want to buy only 8.9 trillion BTUs; if the price is only $2.75 per BTU, they will want to buy 11.5 trillion BTUs. The higher the price, the fewer BTUs of natural gas consumers will want to purchase. So, as the price rises, the quantity demanded of natural gas—the actual amount consumers are willing to buy at some specific price—falls.

A demand curve is a graphical representation of the demand schedule. It shows the relationship between quantity demanded and price.

The graph in Figure 3-1 is a visual representation of the information in the table. (You might want to review the discussion of graphs in economics in the appendix to Chapter 2.) The vertical axis shows the price of a BTU of natural gas and the horizontal axis shows the quantity of natural gas in trillions of BTUs. Each point on the graph corresponds to one of the entries in the table. The curve that connects these points is a demand curve. A demand curve is a graphical representation of the demand schedule, another way of showing the relationship between the quantity demanded and price.

Note that the demand curve shown in Figure 3-1 slopes downward. This reflects the inverse relationship between price and the quantity demanded: a higher price reduces the quantity demanded, and a lower price increases the quantity demanded. We can see this from the demand curve in Figure 3-1. As price falls, we move down the demand curve and quantity demanded increases. And as price increases, we move up the demand curve and quantity demanded falls.

The law of demand says that a higher price for a good or service, other things equal, leads people to demand a smaller quantity of that good or service.

In the real world, demand curves almost always do slope downward. (The exceptions are so rare that for practical purposes we can ignore them.) Generally, the proposition that a higher price for a good, other things equal, leads people to demand a smaller quantity of that good is so reliable that economists are willing to call it a “law”—the law of demand.