If rental prices in a market are falling, what market condition is most likely? (Rephrased)

If rental prices in a market are falling, what market condition is most likely? (Rephrased)

• A. Over-supply
• B. Undersupply
• C. Demand surge
• D. Price elasticity

Answer: (A)

Falling rental prices occur when there are more rental units available than renters want to occupy them. This oversupply means landlords compete for tenants by lowering rents, causing prices to drop overall. If they were undersupplied, rents would rise because scarce units push prices up. A demand surge would increase rents as more people bid for the same available units. Price elasticity explains how sensitive demand is to price changes, not a market condition by itself that creates lower rents.

Falling rental prices occur when there are more rental units available than renters want to occupy them. This oversupply means landlords compete for tenants by lowering rents, causing prices to drop overall. If they were undersupplied, rents would rise because scarce units push prices up. A demand surge would increase rents as more people bid for the same available units. Price elasticity explains how sensitive demand is to price changes, not a market condition by itself that creates lower rents.