Affiliate Broker Tennessee (TN PSI) National Practice Exam `

What is the effect on prices when there are fewer properties on the market due to scarcity?

1. Prices are pushed downward

2. Prices remain unchanged

3. Prices are pushed upward

4. Prices fluctuate randomly

The correct answer is: Prices are pushed upward

When there are fewer properties available on the market, scarcity creates a situation where demand outstrips supply. This imbalance leads to increased competition among potential buyers for the limited number of properties. As buyers are willing to pay more to secure a property in a competitive market, the prices naturally rise. In economic terms, when the availability of a good—in this case, real estate—diminishes while demand remains steady or increases, the market typically responds with higher prices. This is a fundamental principle of supply and demand. The lack of options forces buyers to consider paying more than they might in a more saturated market, thus pushing prices upward.