If there is an undersupply of new homes in a market, __________ will remain relatively stable.

If there is an undersupply of new homes in a market, __________ will remain relatively stable.

• A. Value
• B. Cost
• C. Demand
• D. Interest rates

Answer: (C)

When housing supply is tight, demand tends to stay comparatively stable because buyers still need homes and can’t rapidly reduce their desire or need for shelter. Demand for housing is relatively inelastic in the short run, so the quantity buyers want doesn’t swing as much as supply does when prices rise due to the shortage. As a result, the market’s shortage mainly shows up as higher prices and as construction gradually ramps up over time, rather than a large, immediate shift in demand.

When housing supply is tight, demand tends to stay comparatively stable because buyers still need homes and can’t rapidly reduce their desire or need for shelter. Demand for housing is relatively inelastic in the short run, so the quantity buyers want doesn’t swing as much as supply does when prices rise due to the shortage. As a result, the market’s shortage mainly shows up as higher prices and as construction gradually ramps up over time, rather than a large, immediate shift in demand.