Speculation is an example of the law of demand because:
A)speculators expect the price to go down.
B)the price today relative to the price tomorrow is higher.
C)prices are the same in all time periods.
D)the price today relative to the price tomorrow is lower.

Question

Quizplus · Accepted Answer

Speculation involves buying or selling an asset with the expectation that the price will change in the future. If speculators expect the price to go up, they would buy the asset now to sell it later for a profit. This increased demand for the asset today, in anticipation of higher prices tomorrow or in the future, leads to an increase in the price today relative to the price tomorrow or in the future, which is a violation of the law of demand. However, if speculators expect the price to go down, they would sell the asset now to buy it back later at a lower price. This increased supply of the asset today, in anticipation of lower prices tomorrow or in the future, leads to a decrease in the price today relative to the price tomorrow or in the future, which is consistent with the law of demand. Therefore, option D is the most appropriate answer.

Speculation Is an Example of the Law of Demand Because