Question

Housing prices are higher in city X than in city Y. Using the concepts of supply and demand, explain why.

Answer 1

The economic theory of supply and demand explains how these two factors affect the prices of goods and services around the world. When there is a higher demand for a good or a service, and there is not enough supply available for the high demand, the price of that good or service increases.

For example, in city X there is a high level of demand for houses, but there is not enough supply to satisfy that demand. Therefore the prices of the houses available are going to increase. City Y may experience the opposite than city X. In city Y,  the demand for houses is weak, and there is an oversupply of houses available, therefore the prices of housing in city Y are going to be cheaper than the prices of housing in city X.