Unit 1 Chapter 4

Question 1

Supply and demand

Answer 1

The goal of an economic system is to produce and distribute a supply of goods and services to satisfy
the demand of its constituents. Economic activity, therefore, centers on the production, distribution, and sale of goods and services to meet consumer demand.
• Supply: goods or services available for sale, lease, or trade.
• Demand: goods or services desired for purchase, lease, or trade.

Question 2

Price and value

Answer 2

• Price mechanism: quantified value of an exchange.

* Value components: desire; utility; scarcity; purchasing power.

Question 3

market equilibrium.

Answer 3

A market tends toward a state of equilibrium in which supply equals demand, and price, cost, and value are
identical. This is referred to as market equilibrium. When market equilibrium is achieved, price, cost, and value
are theoretically the same. Market imbalances are caused by changes in supply or demand.

Question 4

Economic characteristics of real estate:

Answer 4

• Governed by supply, demand, price, costs, value components, and government influence.
• Inherent value; unique appeal; immovable supply; illiquid; slow response to cycles; decentralized market.

Question 5

Principles of physical characteristics of real estate are:

Answer 5

• Real estate is indestructible and in a fixed location (immovable).
• Real estate investment tends to be a long term investment.
• Land does not depreciate, only improvements depreciate.
• Property insurance insures improvements to the property, not the land itself.
• No two pieces are exactly alike: they are non-homogeneous.

Question 6

Market influences on supply and demand:

Answer 6

local economic factors; national economic trends in money supply, inflation; government regulation at all levels.