When will speculators' actions raise social welfare?
A) Always.
B) When they drive down market prices.
C) When their expectations prove to be correct.
D) When they are not risk averse.

Question

Quizplus · Accepted Answer

Speculators' actions can only raise social welfare when their expectations prove to be correct. This is because speculators are taking a risk by making predictions about future market conditions, and if their predictions ultimately benefit society by leading to lower prices or increased efficiency, then their actions can be seen as beneficial. However, if their expectations turn out to be incorrect, then their actions may lead to harm for society. Therefore, it is only when speculators successfully predict market outcomes that their actions can be seen as raising social welfare.

When Will Speculators' Actions Raise Social Welfare