Asked by Kajal Verma on Apr 28, 2024
Verified
In order for bubbles to occur,expectations of a price increase usually_______demand and ______supply
A) Increases;Increases
B) Increases;Decreases
C) Decreases;Increases
D) Decreases;Decreases
Bubbles
Economic phenomena characterized by rapid increases in asset prices to levels significantly above their fundamental values, followed by abrupt crashes.
Demand
The desire combined with the ability to purchase a specific quantity of a good or service at a particular price and time.
Supply
The total amount of a product or service available for purchase at any given price point in a market.
- Assess how consumer and producer expectations affect behavior in markets.
- Identify the characteristics and impacts of financial bubbles.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
B
Explanation :
In a bubble, investors buy assets based on the expectation of future price increases. This creates an increase in demand for the asset, driving up its price. However, as the price increases, it becomes less attractive to potential buyers and the supply of the asset tends to decrease as current holders hold onto it in anticipation of even higher prices. This results in a decrease in supply. Therefore, expectations of a price increase usually increase demand and decrease supply, leading to a bubble.
Learning Objectives
- Assess how consumer and producer expectations affect behavior in markets.
- Identify the characteristics and impacts of financial bubbles.