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CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply

Which of the following is a recognised reason why a demand curve may be an exception to the law of demand for a share of a listed company on a stock exchange?

Speculative expectation that prices will rise further makes buyers purchase more shares as the price climbs, so quantity demanded rises with price. This is a recognised exception to the law of demand, arising from expected future price changes rather than current utility.

  1. AConsumers expect the price to rise further, so they buy more as the price risesCorrect
  2. BThe share is a complementary good to bonds
  3. CIncome of all buyers remains constant
  4. DThe supply of shares is perfectly elastic

Explanation

Expectation of future price increases can make buyers purchase more at higher current prices, as in speculative markets such as shares. This is a standard exception to the law of demand. The other options are not exceptions: constant income is a ceteris paribus assumption, and the others are unrelated claims.

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