Final answer:
Real estate prices are slow to adjust due to the unique, nonmobile nature of properties, and the time it takes to build new ones. Supply and demand in this market are inelastic in the short run, albeit more elastic in the long run, which also affects price dynamics. The correct option is B.
Step-by-step explanation:
The question asks why real estate prices are slow to adjust. Among other reasons, real estate markets exhibit price sluggishness because of nonstandard characteristics of real estate, which imply that each property is unique and comparisons are difficult.
Furthermore, the nonmobile nature of real estate means that it cannot be moved to match supply with demand geographically, causing delayed price adjustments. Lastly, the length of time to complete construction of new real estate properties means that supply cannot quickly respond to changes in market demand, thus slowing the price adjustment process.
Events that suggest future value increases, such as a significant local employer hiring more people, can lead to rational expectations that prices should rise; however, the actual adjustment process is slower due to inelastic supply and demand in the short run. Over time, as supply and demand become more elastic in the long run, quantities can adjust more than prices, leading to more muted price changes.
Hence, Option B is correct.