Suppose the local real estate market is in equilibrium. Recently a recession has

Question

Suppose the local real estate market is in equilibrium. Recently a recession has caused local household incomes to decline. At the same time, construction of a large subdivision of new homes has just been completed. Given these two changes, we can predict the price of real estate will and the quantity of real estate bought and sold will. a) fall; fall if the demand decrease is larger than the supply increase b) fall; rise if the demand decrease is larger than the supply increase c) rise if the supply increase is larger than the demand decrease; fall d) fall if the demand decrease is larger than the supply increase; rise

Explanation / Answer

The correct choice is a

Explanation : - The real estate market which initially was in equilibrium will experience a fall in the prices because of the increase in the supply of new homes and a decline in the household incomes due to recession . Thus the demand decrease due to fall in income is larger than the supply increase and the quantity of real estate brought and sold will fall .

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