When prices go down because there are too many homes on the market and too few buyers, what economic principle is at work?

The appropriate answer to this question involves the principle of supply and demand. When there are too many homes available for sale and not enough buyers to purchase them, this creates an imbalance in the market. Specifically, the high supply of homes means that sellers may need to lower their prices in order to attract buyers, which ultimately leads to a decrease in prices. This scenario directly demonstrates the relationship between supply and demand, where an oversupply of a product (in this case, homes) drives prices down due to insufficient demand.

While competition, market saturation, and value depreciation are related concepts, they do not capture the fundamental economic principle that is being referenced in this scenario. Competition typically refers to the rivalry between sellers in the market, while market saturation describes a situation where the number of goods available exceeds consumer demand, which is a specific aspect of supply and demand. Value depreciation can occur due to various factors, but it specifically focuses on the decline in value of an asset rather than the underlying economic forces at play regarding pricing.