Question

The book has the question written as such: In a dynamic, constantly changing economy, would you expect most markets ever to reach an equilibrium price? What about markets for various classes of real estate?

Answer 1

In this dynamic and constantly changing economy, it is very difficult for most of the markets to reach an equilibrium. Even if some of the markets reach an equilibrium, with constantly changing price of related income, income level, change in the tastes and preferences of the consumer, changes in the expectations of price level, etc, the market does not remain in equilibrium for along time. The law of demand and law of supply assumes that all the other things in the economy are constant and prices are changing. However, with the advent of globalization and constantly changing economic scenarios in the world economies today, it is difficult for most of the markets to reach an equilibrium price.

It has been observed that in the markets for various classes of real estate, the demand is always more than the supply with the increase in population growth rate and increase in income level of the society. Also, this market is very dynamic with changes in laws and procedures announced frequently to enhance transparency in the market. Thus, it is difficult to observe equilibrium for various classes of real estate.