A newspaper reports that the average price of new homes in a certain city had decreased, and the number of new homes sold had also decreased. This situation is probably caused by:

Question

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When the incomes of people in a city decrease, they are less likely to be able to afford new homes, leading to a decrease in demand and ultimately a decrease in the average price of new homes sold. This would also explain the decline in the number of new homes sold. A is incorrect because declining costs of construction materials and services would likely lead to a decrease in home prices but an increase in the number of new homes sold. C is incorrect because higher government subsidies to new homebuyers would likely lead to an increase in the number of new homes sold, but may not necessarily affect the average price of new homes. D is incorrect because a rising population would typically lead to an increase in demand for new homes and higher home prices, rather than a decrease.

A Newspaper Reports That the Average Price of New Homes