Under the Principle of Supply and Demand, what happens to value when supply falls and demand rises?

• A. Market forces are always at work
• B. Prices are fixed by regulation
• C. Interest rates determine value
• D. Property taxes determine value

Answer: (A)

In a supply-and-demand view, value is determined by what buyers are willing to pay in a competitive market. When supply falls and demand rises, scarcity increases and buyers compete more, so prices rise and market value goes up. This upward shift is driven by market forces—the balancing act between limited availability and higher willingness to pay. External factors like regulation, interest rates, or property taxes can influence the level, but the immediate mechanism at work here is the market forces pushing value higher due to the new imbalance. For example, fewer homes and more buyers often lead to bidding and higher sale prices, reflecting increased value.