Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

When demand decreases, how do prices usually react?

1. Decrease

2. Increase

3. Remain Stable

4. Fluctuate

The correct answer is: Decrease

When demand decreases, prices usually react by decreasing as well. This relationship arises from the fundamental principles of supply and demand in economics. In a market, when demand for a product or service falls, there are fewer buyers willing to purchase at the previous price levels. Sellers, in response to lower demand, may lower their prices to attract buyers and move their inventory. This price adjustment helps to equilibrate the market, ultimately leading to a new balance where supply meets the lowered demand at a lower price point. Understanding this relationship is crucial for real estate professionals as it influences market dynamics, property valuation, and overall economic health. An awareness of how demand shifts affect pricing strategies can guide real estate agents in advising clients on when to buy or sell properties, as well as in making informed investment decisions.