Certified Residential Appraiser Practice Exam

What is the term for changes in price due to shifts in demand or supply?

1. Price Sensitivity

2. Market Equilibrium

3. Price Elasticity

4. Value Fluctuation

The correct answer is: Price Elasticity

The correct term to describe changes in price due to shifts in demand or supply is price elasticity. Price elasticity refers to the responsiveness of the quantity demanded or supplied of a good to a change in its price. When there is an increase or decrease in demand or supply, it affects the price of the good in the market. A higher price elasticity indicates that consumers or producers are more responsive to price changes, leading to more significant fluctuations in prices as demand or supply shifts. Understanding price elasticity helps appraisers, economists, and market analysts gauge how sensitive the market is to changes in economic conditions, consumer preferences, or resource availability. For instance, if demand for a particular property increases due to a rise in interest rates leading to lower prices, the resulting price elasticity will show how much demand for properties changes in response to these price adjustments. Other terms like price sensitivity involve general consumer reactions to price changes but do not specifically quantify or analyze the relationship between price changes and demand or supply shifts. Market equilibrium refers to a situation where supply equals demand, and value fluctuation is a more general term that does not specifically address the dynamics of demand and supply in relation to price changes.