Why is it economically not possible for everyone to believe that a market price will increase?

2 Answers | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

This statement (that it is not possible for everyone to believe the price will go up) is not true in all cases.

For example, it is perfectly possible for everyone to believe that the price of gasoline will be higher in the summer once it is “driving season” in the United States.  We know this will happen but it does not cause enough changes in behavior (less driving, more production) to prevent the price increase.

The statement is, however, more accurate when it comes to the futures market for commodities.  Many people who trade on the futures market are speculators.  They are essentially looking to bet on whether the price of a given commodity will go up or down.  If all speculators were to agree that the price would go up (and if they were all to agree on how much it would go up) much less trading would occur.  This is because there must be both supply and demand for trading to occur.  On each futures contract made for speculative purposes, one side must think the price will go up more than the other side does.  If both sides agree on how much the price will go up, neither would make the trade.  It is like trying to bet on a sports event with a friend if you both think the same team will win by the same margin; neither of you will take the other’s bet.

powerrangerpink's profile pic

powerrangerpink | Student, Grade 11 | (Level 1) eNoter

Posted on

It is hard for people to come to terms with the idea that a market price will increase because economically , the market is often based on consumer demand . Once people believe that there is a strong relationship between the things people always buy in abundance and the general trend of the market , they tend to forget that relationship can be altered by several factors, including but not limited to business.

We’ve answered 317,808 questions. We can answer yours, too.

Ask a question