Question

In the market for gold, if both buyers and sellers expect an increase in the price of gold next month, what would happen to the equilibrium price and equilibrium quantity of gold at current month? Discuss this case and use graphs to illustrate your answer.

Answer 1

If buyers and sellers both expect an increase in the price of gold next month, the equilibrium price and quantity of gold at the current month will increase.

Step-by-step explanation:

In the market for gold, if both buyers and sellers expect an increase in the price of gold next month, the equilibrium price and equilibrium quantity of gold at the current month will be affected.

If buyers and sellers both expect an increase in the price of gold next month, it means that the demand for gold will increase in the future. As a result, the demand curve for gold will shift to the right. When the demand curve shifts to the right, the equilibrium price and quantity will both increase.

Graphically, this can be illustrated as follows:

1. Draw a demand curve for gold at the current month.
2. Since the demand for gold is expected to increase next month, shift the demand curve to the right.
3. The new equilibrium price will be higher than the current equilibrium price, and the new equilibrium quantity will be higher as well.