Monday, April 25, 2011
Here's the thing about speculators: If they could arbitrarily, without loss or limit, do whatever it is they're presumed to do to increase commodity prices, why do they restrict themselves to oil, and why isn't the price of everything infinite? Something must limit their power to affect prices, and here's a hint: it's not the government. A speculator places a bet on a future outcome (in this case, the price of oil). What happens if the price of oil doesn't reach the level on which they speculated? They lose the bet (and the money they wagered). What happens if it does? More oil goes on the market, because it's more profitable, and demand drops, placing downward pressure on oil prices. Exercise: What do "elasticity of supply" and "elasticity of demand" mean?