Certified Pennsylvania Evaluator Practice Exam

What principle determines value based on demand and supply?

1. Principle of Contribution

2. Principle of Competition

3. Principle of Supply and Demand

4. Principle of Utility

The correct answer is: Principle of Supply and Demand

The principle that determines value based on demand and supply is the principle of supply and demand. This principle is foundational in economics and real estate, as it illustrates how the interaction of buyers and sellers in a market influences the prices of goods, services, and property. When demand for a property exceeds its supply, prices typically rise. Conversely, if there is more supply than demand, prices tend to fall. Thus, this principle elucidates how market dynamics establish the value of properties and other assets in real time, reflecting the conditions of the market. The other principles, while relevant to different aspects of value and economics, do not focus specifically on the relationship between supply and demand. The principle of contribution relates to how much a particular element adds to the overall value of a property. The principle of competition pertains to market behavior and how competing entities affect pricing but does not directly address the mechanics of supply and demand. The principle of utility focuses on the usefulness or usefulness of a property to potential buyers but again does not encapsulate the broader market forces at play. Therefore, the principle of supply and demand is the most accurate description of how value is determined in relation to market dynamics.