Answer Happy

Q6. (10%) In densely populated urban areas (such as New York, Mexico City, or Istanbul), the real estate demand (i.e. demand for apartments, offices, houses, etc.) is on the one hand highly sensitive to prices. Once there is a decline in the property prices (which happens when the real estate supply is higher than the real estate demand), demand rises rapidly. The construction sector, on the other hand, initiates new projects based on new demand for properties. When there is an increase in demand, new projects are initiated immediately. Construction projects are completed with relatively long delays of about 2-3 years. What kind of dynamics would you expect to see in property prices if many construction companies operate in these urban regions and they are not aware of the construction projects initiated by others? a. Continued increase b. Continued decrease c. Some form of oscillations Justify your answer.