In January there was a large drop in the number of new houses sold, because interest rates for mortgages were falling and many consumers were waiting to see how low the rates would go. This large sales drop was accompanied by a sharp rise in the average price of new houses sold.

Which of the following, if true, best explains the sharp rise in the average price of new houses?

Answer Choices

Correct answer marked below

Sales of higher-priced houses were unaffected by the sales drop because their purchasers have fewer constraints limiting the total amount they pay.

Correct

Labor agreements of builders with construction unions are not due to expire until the next January.

The prices of new houses have been rising slowly over the past three years because there is an increasing shortage of housing.

There was a greater amount of moderate-priced housing available for resale by owners during January than in the preceding three months.

Interest rates for home mortgages are expected to rise sharply later in the year if predictions of increased business activity in general prove to be accurate

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What this question tests

What it tests

Whether you can explain an apparent contradiction in a way that makes both facts true.

Common trap

Picking an option that explains one side of the paradox while making the other side false.