The demand for a good can be shown by a demand schedule. This shows the relationship between various prices and the quantity of the commodity that an individual consumer or groups of consumers is/are able and willing to purchase within a given period. The demand schedule assumes that the nonprice determinants of demand are held constant.
EXAMPLE
The following table is a demand schedule for 2 bedroom houses in a particular suburb over a 6 month period:
DEMAND SCHEDULE FOR 2 BEDROOM HOUSES OVER A 6 MONTH PERIOD
|
PRICE |
QUANTITY |
|
$160 000 |
20 |
|
$170 000 |
15 |
|
$180 000 |
10 |
|
$190 000 |
8 |
|
$200 000 |
7 |
|
$210 000 |
4 |
|
$220 000 |
2 |
The schedule lists the different quantities of houses that buyers will purchase at various prices per unit of time. As house prices increase, the perceived utility of the house per dollar of cost decreases. The schedule can be graphed as in the diagram below.
The demand for real estate can change in 2 ways:
A CHANGE IN PRICE
Causes the quantity demanded to change. An increase in consumer demand at lower prices is shown in the downward slope of the curve. Conversely, as prices rise, the quantity demanded will decrease.
A CHANGE IN ANOTHER DETERMINANT
Where a determinant of demand other than price changes there is a change in demand at every price. This is shown by a shift in the demand curve. See diagram below:
DIAGRAM
DEMAND CURVE FOR 2 BEDROOM HOUSES BEFORE & AFTER A DROP IN CONSUMER INCOME
Suppose the diagram illustrates demand in a suburb dominated by a car manufacturing company. The local car manufacturer and largest employer of workers in the area cuts it’s workforce by 50% causing a decrease in the average income of those residents most likely to buy houses in that suburb.