Alabama Real Estate Practice Exam

What effect does a greater supply and smaller demand have on prices?

1. Prices increase

2. Prices stay the same

3. Prices decrease

4. There is no effect

The correct answer is: Prices decrease

When there is a greater supply and a smaller demand for a product, it means that there is more of the product available for purchase but there are less people interested in buying it. This creates an imbalance in the market, as there is more supply than demand. As a result, sellers will have to lower their prices in order to attract buyers and get rid of their excess supply. This is why a greater supply and smaller demand typically leads to a decrease in prices, making option C the correct answer. Options A and B are incorrect because they do not reflect the impact of supply and demand on prices. Option A implies that prices would increase, which is counterintuitive when there is more supply than demand. Option B states that prices would stay the same, but in reality, sellers would have to adjust their prices to sell their excess supply. Option D is incorrect because there is indeed an effect on prices