Economic theory and the real estate market The core of economic theory is based on supply and demand. Demand is what consumers are willing to buy at a given price. Supply is what suppliers are willing to sell at a given price. We can then relate this to the real estate market. There are factors that can increase or decrease supply, such as the cost and availability of resources, government taxes, etc. There are also many factors that influence demand, for example the price of substitutes (apartments), the price of compliments (mortgages), etc. These factors can therefore increase or decrease demand. THE REAL ESTATE MARKET will use the real estate market to try to demonstrate whether various economic theories contain elements of truth by looking at statistics and facts, or is simply theoretical and unrealistic. THEORY ONE --- The first economic theory states that if the real income of families increases, then the demand for a good, therefore houses should increase. Although housing is seen more as a necessity, some homes can also certainly be considered luxurious.YEARNUMBER OF HOMES PURCHASED (000S)AVERAGE INCOME1990140011,1841991130012,1031992112812,8241993119113,4051994127913,86319951 3 1115,6361996124316,5191997144017,7131998134719,0571999147019,64120001499Watching the data we have you can almost automatically see that the increase in income has consequently increased the demand for purchasing homes due to consumer confidence and spending. If they have more money they believe they can spend more and therefore ask for a mortgage. THEORY TWO Compliments are two goods that are purchased together, since they depend on each other, e.g...