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

When supply increases, what effect does it have on prices?

1. Increase

2. Decrease

3. Remain Stable

4. None of the above

The correct answer is: Decrease

When supply increases in a market, it generally leads to a decrease in prices. This relationship is rooted in the basic principles of supply and demand. When there is a larger quantity of goods or services available for consumers to purchase, competition among sellers often intensifies, and they may lower prices to attract buyers. Hence, with more supply available, the relative scarcity diminishes, leading to downward pressure on prices. This principle can be observed in various markets, including real estate. For instance, if a new housing development is completed, the increase in available homes can lead to reduced prices for those homes or even for existing home sales in the area. Buyers have more options, making sellers more willing to lower prices to make their properties more competitive in the market. In terms of the other options, prices do not typically increase when supply rises, and nor do they usually remain stable. Therefore, the most logical outcome when supply increases is a decrease in prices.