Certified Pennsylvania Evaluator Practice Exam

What does the Principle of Balance indicate?

1. Maximum market value is attained when one agent of production dominates

2. Maximum market value is attained when the agents of production are in equilibrium

3. Market value decreases due to excess labor supply

4. Market value is fixed according to land value

The correct answer is: Maximum market value is attained when the agents of production are in equilibrium

The Principle of Balance indicates that maximum market value is achieved when the various agents of production—land, labor, capital, and management—are in a state of equilibrium. This equilibrium means that no single agent is overly dominant or in short supply compared to the others; instead, they complement each other effectively to create value. When all agents are balanced, it allows for the most efficient use of resources, which ultimately leads to the highest possible market value for a property or production as a whole. For instance, in real estate, if there is an adequate supply of land, appropriate labor available to build, and sufficient capital and management to oversee development, the market value is likely to reflect this balance. Imbalances, such as having an excess of one resource while others are lacking, can lead to inefficiencies and, consequently, lower market values. Thus, the essence of the Principle of Balance is that harmony among production factors is crucial for achieving the highest market value, making it integral to understanding real estate and economic principles.