Elastic demand for housing in a submarket means that:
Correct Answer
A) Buyers respond strongly to changes in price
Why this is correct: Elastic demand means the quantity demanded is highly responsive to price changes. In housing, this occurs when many substitutes are available; a small price increase causes buyers to choose alternatives, leading to a sharp drop in sales volume. Why the other choices are wrong: "Supply cannot respond to demand changes" describes inelastic supply, not elastic demand. "Prices remain fixed regardless of demand" contradicts the basic principle of market pricing. "The submarket has no close substitutes" describes inelastic demand, where buyers have few alternatives and are less sensitive to price changes. Exam tip: Elastic = buyers have options and react strongly to price. Inelastic = buyers have few substitutes and tolerate price changes.
Why This Is the Correct Answer
Why this is correct: Elastic demand means the quantity demanded is highly responsive to price changes. In housing, this occurs when many substitutes are available; a small price increase causes buyers to choose alternatives, leading to a sharp drop in sales volume. Why the other choices are wrong: "Supply cannot respond to demand changes" describes inelastic supply, not elastic demand. "Prices remain fixed regardless of demand" contradicts the basic principle of market pricing. "The submarket has no close substitutes" describes inelastic demand, where buyers have few alternatives and are less sensitive to price changes. Exam tip: Elastic = buyers have options and react strongly to price. Inelastic = buyers have few substitutes and tolerate price changes.
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