24-Speculation & Market Bubble

Question 1

Define Speculation

Answer 1

It means Economic Agent BUYS or SELLS a good in EXPECTATION of Future Price Change & Profit

Question 2

Define Market Bubble

Answer 2

It occurs when Rising Demand Drives Prices Well Above the Level that might Normally be Expected
A normal Bubble is created by Speculation of Further Price Increase
This Prevent Markets from Performing Efficiently Resulting into Market Failure

Question 3

State The Impact of Market Bubble to Consumers

Answer 3

A housing Market bubble would Benefit Home owners Creating Consumer Confidence and Increase Consumption of other Goods.
However, Low & Middle Income Families will Find it Increasingly Difficult to Purchase a House

Question 4

State The Impact of Market Bubble to Producers

Answer 4

Construction Companies Could Benefit from Higher Revenues & Profits as there is Increased Demand to Build more Houses. Workers may Find it More Difficult to move from one Area to another If the Increase in House Prices is not Uniform across the Country

Question 5

State The Impact of Market Bubble to Government

Answer 5

Govt could Benefit from Higher Tax revenue if there are Taxes on the value of a House when Transferred from one Person to Another. They also Gain Greater Corporate Tax revenue as Construction Firms would make more Profits

Question 6

State The Impact of Market Bubble to Banks

Answer 6

Higher House Prices will see Banks Lending more money helping them to generate more revenue & Profit
However, as Bubble Bursts there is a fall is Confidence & aggregate demand in the Economy leading to less Profit, Job losses & a Possible Recession