Abstract
A much-neglected concept of price speculation from the side of consumers plays an important role in the determination of prices and quantity traded in the market. Almost all the consumers speculate about future prices of commodities and at the first stage, whenever prices increase, most of the consumers believe and speculate that the prices will increase more in the future. The current study underhand is conducted to find the factors of speculative demand for wheat and its relationship with consumer’s welfare. The need for this study was to find the factors of speculative demand and its and its relationship with the welfare loss. For this purpose data were collected from one hundred wheat consumers who buy wheat monthly from rural and urban areas of District Mandi Baha ud Din, Pakistan at random by direct interviewing to analyze which factors compel them not to buy wheat at annual bases and how it is related to their income, family size, and monthly income. Results show a negative relationship between the speculative demand for wheat and income. There is also a positive relationship between speculation and family as well as between speculation and actual quantity demanded. The lower-income consumers do speculation about the prices of the wheat from September to March and cause prices to increase about 8.92% more than the normal prices which cost them to lose consumer welfare and surplus. It is concluded that if consumers avoid speculation, they can buy wheat at 8.92% lesser price and can enjoy more consumer welfare and surplus. An increase in speculative demand increases prices more than a normal increase. The addition of some portion of price increment merely is due to consumer’s psychological phenomenon of speculation.
Highlights
The law of demand says that other things remaining constant if price increases quantity demanded decreases and when price decreases quantity demanded increases
It can be termed as rational behavior of consumers but often this rational behavior is irrational in real-world and it paves way to exploitation of consumers and its root cause is no consideration of psychological aspect of consumers in the too much simple Law of Demand as it does not guide the consumers what will happen in real-world when along with prices their psyche plays an important role in determination of prices
We found a strange fact by interviewing directly the consumers of wheat that they never have “Positive Speculation” about wheat prices during the whole season, which is consumers never speculate that prices will decrease in the future
Summary
The law of demand says that other things remaining constant if price increases quantity demanded decreases and when price decreases quantity demanded increases. Yasin / Journal of Economic Impact, 1(3), 87-91, 2019 the prices of commodities which are a summation of all the psychological aspects of consumers because they are made after looking into the budget, income, needs, quantity of consumption, alternatives and keeping the best interest of the family in mind It can be termed as rational behavior of consumers but often this rational behavior is irrational in real-world and it paves way to exploitation of consumers and its root cause is no consideration of psychological aspect of consumers in the too much simple Law of Demand as it does not guide the consumers what will happen in real-world when along with prices their psyche plays an important role in determination of prices. Many factors affect the prices such as spot price, income, prices of related goods, etc. but there is an ignored determinant of demand and price which is expectations of consumers which can be termed as price speculation
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