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In search of an article on supply demand and pricing of real estate it was interesting and educational to come across an article that read the national median selling price for real estate increased in July while volumes fell according to data from the Real Estate Institute of California REIC Clark 2004 The determination of prices in local housing markets is a classic example of microeconomics As a new home owner it would be hard to disagree with the contents of this article The interaction between buyer and seller with prices being offered and agreed before a final transaction is made is the clear evidence that there are more buyers in the market place than sellers Each housing transaction in the US is based on the seller and the buyer or in economist terms supply and demand Supply and demand is defined in a book called Macroeconomics fifth edition Economics for Business I by Back Matter in chapter-4 page-101 first paragraph the law of demand states that quantity demanded rises as price falls other things constant The law of supply states that quantity supplied rises as price rises other things constant Matter 2004 respectively It is crucial to pay attention to the phrase other things constant because this is one of the factors that influences supply and demand What does other things constant mean To better understand this phrase please refer to the following example Over a period of two years both the price of houses and the number of houses purchased rise That seems to violate the law of demand since the number of houses purchased should have fallen in response to the rise in price Looking at the data more closely however we see that a third factor has also changed Individuals income has increased As income increases people buy more houses increasing the demand for cars Matter 2004 Other factors that can influence supply and demand are consumer confidence This
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