Supply and Demand Flashcards
The function of any marketplace is to provide a setting in which supply and demands can operate to establish what?
Price
When supply increases and demand remains stable, which of the following usually takes place? A.) Prices fro down, B.) Prices go up, C.) Market equiliibrium achieved. D.) inflation occurs
Prices go down
Which of the following is TRUE of RE markets? 1.)They are immune from supply and demand, 2.) They are primarily local in nature, 3.) They are national markets, 4.) They are characterized by uniqueness and mobility
2.) they are primarily local in nature.
All of the following are factors that tend to affect the supply side of the market EXCEPT 1.)Labor force 2.) material costs 3.)government financial policies 4.) demographics
4.) Demographics
On a graph illustrating the supply curve, what characteristics is measured on the y axis?
price is on y axis (vertical), quantity is on x axis(horizontal)
The amount of goods and services that people are willing and able to buy at a given price is called:
demand
What is the single most important factor in determining demand in the real estate market?
affordability
The number of people coming into an area, minus the number of people who leave, is the way of determining what?
Net Migration
The characteristic direction of the demand curve is
Down and to the right
The characteristic direction of the supply curve is
up and to the right
the interrelationship between demand and price is referred to as what?
elasticity
Prices for goods and services are set by the operation of:
supply and demand
when demand increases and supply remains stable, what happens?
prices go up
Two characteristics of real estate govern the way the market reacts to the pressure of supply and demand forces. What are they and WHY?
Uniqueness and Immobility – natural disasters, sudden changes in financial markets, or local events like a plant closing can dramatically disrupt a seemingly stable market
What are the three factors that must be taken into consideration in determining value?
money, interest rates, and inflation
What factors affect supply?
labor force, construction/material costs, government control and financial policies
What do supply schedules or the supply curve do?
measure supply
what refers to the responsiveness of supply or demand to price?
elasticity
what are the factors affecting demand and which of those factors are most important
population, demographics, and employment/wage levels, but affordability is the most important
What types of items have high elasticity and why?
Luxury items like electronics because demand can increase significantly with decrease in price
What types of items have low elasticity and why?
necessity items like toilet paper. Basic products is relatively inelastic
What are some of the community amenities that have a tendency to enhance value?
Educational opportunities, public transportation, streets/highways/freeways, utilities (abilities to meet expanding environment), sports, cultural, and recreational facilities
True or false - economic diversity is not imperative for a healthy economy
False - you don’t want all your eggs in one basket. Towns with only one major employer (mill, military base, factory) are extremely vulnerable.
The two principal forces that drive an open market are:
supply and demand
What is defined as the quantity of a product or service available at a specified price?
Supply
Supply is determined by what two factors
how much it costs to produce and the cost of other goods
Equilibrium occurs when what happens?
Just like when there are as many home buyers as there are seller, equilibrium occurs when supply and demand of a particular variable are in balance and there is no pressure on the variable to change
Credit availability is always a primary concern on the demand or supply side of the real estate marketplace
demand
True or false - When interest rates are low, lenders shift risk to the borrower basing loan products on a variable rate structure.
False - low interest rates usually command fixed rate mortgages
What index drops when interest rates rise?
the National Association of Realtors’ Affordability index, which measures the percentage of potential buyers who can afford a median priced home
What is the primary concern on the demand side of the Real Estate marketplace?
credit availability
When inflation is high, what rates also rise and why?
interest rates. In an effort to curb runaway spending, you begin to see restrictions on the overall affordability of capital across the board
When interest rates are high, what types of loans are usually available? Fixed rate or variable rate loans and why?
Variable rate loans because lenders want to shift the risk to the consumer.
what does FTB-HAI stand for?
first time buyer housing affordability index
what does FTB-HAI measure?
the percentage of households that can afford a median priced home in prevailing market conditions
What does PITI stand for?
Principal, Interest, Taxes, and Insurance
What is PITI used for?
Because PITI represents the total monthly payments, it helps both the buyer and the lender determine the affordability of an individual mortgage
In Real Estate, what are the 4 common factors influencing supply?
Availability of 1.) Skilled Labor, 2.) construction financing 3.) land, 4.) raw materials
The Federal Reserve established a ____________ rate of interest for the money it lends to commercial banks.
discount
Give two examples beyond interest rates of how a government’s policies can directly impact the real estate market
Removing the 1031 exchange, decreasing the the supply of land through conservation acts, regulations that could increase or decrease the value of land, taxation, REZONING, Land use controls,
What is the difference between monetary policy and fiscal policy?
Fiscal has to do with taxation and government spending to regulate or stimulate economic activity. Monetary Policy has to do with policies that regulate the supply of money, the structure of interest rates, and availability of credit.
on a supply curve graph, the x axis is vertical or horizontal? And what does it measure?
horizontal - quantity. The y axis (vertical) measures price.
The demand curve is a function that shows what?
the quantity demanded at different prices. That is the quantity that Buyers are willing and able to purchase at a given price.
True or False? Demand Curves are about the Seller’s purchase power
False. Demand Curves measure Buyers’ willingness to purchase goods at different prices
the supply curve is a function that shows what?
how much of a good Sellers are willing to supply at different prices
A higher price on a supply curve typically means what in relation to the quantity supplied? More or Less of a good is supplied at higher prices?
More! Think Oil. There are a few countries where retrieving oil is cheap, but its expensive to drill for oil in most places. So there are some companies that can turn a profit by selling cheap gas, but there are MORE companies that need prices to be higher in order to turn a profit. So the supply curve rises as more companies are willing to sell at higher prices.
Lets say the price of oil is $50 a barrel and that’s above the equilibrium price (i.e. more than what most people want to pay) – so the quantity supplied is more than the quantity demanded – and that leads to a __________ which causes Sellers to lower their prices.
A Surplus. When sellers can’t sell as much as they like to at a certain price, they often end up discounting goods to generate interest until an equilibrium is reached
Lets say the price of oil is $15 a barrel and that’s below the equilibrium price (i.e. high demand for oil at such a low price, selling at high quantities), but this leads to a ____________ which causes Sellers to raise their prices
Shortage.
In real estate, what are three factors affecting demand?
demographics, population (migration - net and natural), employment and wage levels.
the interrelationship between demand and price is referred to as
elasticity
