This indeed as a resolve the paradox question, because there is a sharper decrease in the number of homes sold than the drop in the market alone accounts for.

We need an answer choice that best explains this trend:

a) A drop in demand for houses depresses prices disproportionately if earlier strong demand stimulated much new construction.

Doesn't help explain the sharper drop in home sales.

b) Real estate agents do not earn the commission on houses they help sell until the sale is actually executed.

Whether agents earn commission doesn't explain why houses aren't sold.

c) Many people sell their old house below the asking price in order to obtain the funds to buy a new one.

Here we are dealing with sellers who sell low, not those who can't sell because their price is too high.

d) In a housing market with rising demand, even houses that were originally overpriced usually sell at the asking price.

We are dealing with a housing market with falling demand.

e) For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell.

This answer choice suggests that sellers will not go below a certain value because they believe that the house to be valued at the cost of their initial offer. Since their initial offer is high (the agent who makes the highest bid is more likely to be recruited), these sellers will unlikely be able to sell their homes. ANSWER
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Clearly (E).

A: Unrelated. We have no information about earlier strong demand.
B: Out of scope. The commission of the agents is not being discussed here.
C: Out of scope. Old and new houses are not being discussed here.
D: We are discussing a market with falling, not rising, demand. Out of scope.
E: CORRECT. If the initial asking price is the minimum that the seller will accept, a lot many more houses will remain unsold than could be explained by just a drop in demand. This will happen because less houses will be sold due to lesser demand AND even those houses that could have been sold (in spite of the reduced demand) will remain unsold because the owners perceive that the price being offered is too low
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Please explain why A is wrong???
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I am finding it really hard that what are the two things compared here

1) a sharper drop in the number of houses sold (so ideally if 100 houses would have been sold now only 20 would be sold )
2) the drop in demand alone would account for. ( what is this ? completely bounced over my head. )

can someone please help me to understand ?

thanks
Lucky

i think i got it after reading the stem 10 times, and this is the problem i am facing with most of the CR questions that i take a lot of time to understand what is happening in the stem.
Let me try to summarize the question stem.
on Agents' recommendation the sellers are asking for price as high as current market price.
So if there is a falling demand then such advise to sell at current market price or basically sellers strong stand to sell it only at asking price would further cause the demand to fall.

so lets assume there were 10 old house and 10 new house , current market price for old units is 100K $ and new units is 150K $ , lets assume demand is falling , what will happen if the Old unit Owners are not ready to decrease the unit cost ? the demand will further go down .

E explains this most correctly.

Experts ( ChrisLele ), please verify my reasoning.

thank you,
Lucky

Hi Samichange,

(A) is wrong because it doesn't state anything regarding the sharper drop in the number of houses sold. It just says that drop in demand lowers the prices disproportionately. We are looking for an option which helps us to understand why there is sharper drop in the number of houses sold than the drop in the demand.

inference based type
conclusion:
real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits. They do this because potential sellers are more likely to entrust their houses to the agent who values them highest

only option E in line with argument
For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell

Well it took me little time to decode whats going on in the last lines but via logic we can understand and decode this easily without even getting into core meaning .
Lets DECODE

1)In some countries, real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits. = so I am owner of my house and I wish to sell my house .My agent told me (recommended) to keep initial price max permitted price as per current market . Yeah I want best price thanks agent.
2)They(AGENT) do this because potential sellers are more likely to entrust their houses to the agent who values them highest. = yeah this agent is gonna make me richer. I am already impressed with the recommendation . So we have agreed to sell my house for 4 MILLION DOLLARS.
3)In a housing market with falling demand, =when demand for purchase of house falls
4)the predictable result is a sharper drop in the number of houses sold than the
drop in demand alone would account for.= normal demand should be at rate of 40 % (lets assume) ,but actual demand DROPPED by 80% . Well I want to sell my house for 4 million dollars coz my house is worth this amount .Now if demand for houses go low and I know market is down but I won't sell until the market comes up because I am in no hurry , my house is valuable and I ain't gonna sell it for fewer than 4 million dollars . and if other SELLERS too think my way then they too won't be selling their houses which would force the already low NATURALLY LOW DEMAND to fall more because no seller is ready to lower the price and no. of houses available for sale are not enough .

Option A vs E

In some countries, real estate agents negotiating with prospective clients who want to sell their houses all recommend initial asking prices that are as high as the current market permits. They do this because potential sellers are more likely to entrust their houses to the agent who values them highest. In a housing market with falling demand, the predictable result is a sharper drop in the number of houses sold than the drop in demand alone would account for.

Which of the following, if true, best explains the result described as predictable above?

(A) A drop in demand for houses depresses prices disproportionately if earlier strong demand stimulated much new construction.
NOW no info about new construction is given . We always have to choose BEST answer and E is better than this .Moreover the drop in demand depresess prices but still thsi option fails to tell us why there is sharp decrease in demand for houses .


(E) For many sellers of houses, the initial asking price comes to represent the true value, below which they will not sell.
This is exactly what we were thinking . IF SELLERS DONT SELL THE DEMAND WILL SHARPLY GO DOWN . its called forced downward push on demand (thats not official name I just gave it this name in case you wanna use this logic in other relevant CR)