Certified Pennsylvania Evaluator Practice Exam

Which principle concerns the balance between supply and demand affecting value?

1. Principle of Competition

2. Principle of Supply and Demand

3. Principle of Contribution

4. Principle of Loss

The correct answer is: Principle of Supply and Demand

The principle that specifically addresses the relationship between supply and demand and how it affects value is the Principle of Supply and Demand. This principle states that the value of a good or service is determined by the relationship between its availability (supply) and the desire for it (demand). When supply exceeds demand, values tend to decrease, while limited supply coupled with high demand can drive values up. This principle is foundational in economics and appraisal, as it helps evaluators understand market dynamics and influences on property value. To solidify understanding, it’s important to note that other principles, while relevant in different contexts, do not directly deal with the dynamics of supply and demand in relation to value. The Principle of Competition, for example, pertains to how the presence of competing properties can impact value outcomes but does not specifically outline the supply and demand relationship. Similarly, the Principle of Contribution deals with how individual features of a property contribute to its overall value, and the Principle of Loss addresses value diminishment due to various factors, neither of which addresses the core relationship of supply and demand.