Question 1
An agent notices that resale flat prices have climbed steadily over eighteen months even though economic growth has been flat and the private residential index has barely moved. A colleague attributes it to the general economy. The agent points out that the supply of new flats offered for application has been reduced over that same period, and that waiting times have lengthened.
Which statement most appropriately explains the movement?
Show the answer and full explanation
Answer: C
The rule. Resale flat prices are driven principally by swings in the supply of new flats offered for application rather than by general economic conditions. Reduced new supply and lengthening waits push demand into the resale market.
Why C is correct. It identifies the mechanism that fits the facts: reduced new-flat supply, longer waits, resale prices rising while growth is flat.
The other options.
- A asserts a tracking relationship with growth that the facts contradict.
- B treats resale prices as administratively set, which would make the observed movement impossible.
- D dismisses the data rather than explaining it.
Exam note. When resale flat prices move against the general economy, look to new-flat supply before looking to macro conditions.
Reduced new supply and lengthening waits push demand into the resale market →