• Card 97 / 100: Explain how speculators actually regulate the stock market in a healthy and non-interventionist way.

    Answer:
    A speculator buys low and sells high, or short-sells high and buys back low. A successful speculator therefore bids up underpriced stocks, and pushes down overpriced stocks. Successful speculation therefore makes stock prices less volatile for other, less knowledgeable investors. Sample Partial Credit Answer Speculators correct mispricings in the stock market.

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Capitalism: The Market Economy

Access: Public Peer Review

Attribution:  Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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