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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Speculators can benefit themselves and others at the same time. Do you agree or disagree with this statement? Explain your answer with an example.

To determine

The speculators.

Explanation

Agree. A speculator is a person who buys when the price of goods is low and sells when the price of goods is high with a motive of getting profit from the difference in prices. However, when the transactions are done through a speculator, it results in a reallocation of goods and this would be beneficial for the consumers. This is due to the reason that when the speculators buy more, the demand for the good increases and this increases the price of the goods. When the price of the goods is high, the selling of goods by the speculators will increase the supply of goods in the economy and this would lead to fall in the prices which would benefit the consumers.

This can be illustrated with the help of an example. Let us assume that a bad weather is predicted to attack the wheat cultivation. This forecasts a reduction in the supply of wheat and hence, there is an increase in the price of wheat due to the possible shortage. In this situation, the speculators would intend to buy more wheat in the current period when the price of wheat is low due to abundant supply with the intention of selling the wheat at a higher price when there is a shortage due to the bad weather...

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