An asset market is said to experience a speculative bubble when
A)the price of the asset rises above what appears to be its fundamental value.
B)the price of the asset appears to follow a random walk.
C)the market cannot establish an equilibrium price for the asset.
D)the asset is a natural resource and its supply is manipulated by foreign nations and foreign firms.

Question

Quizplus · Accepted Answer

A speculative bubble occurs when the price of an asset rises above its fundamental value. This means that investors are bidding up the price based on expectations of future price increases, rather than based on the intrinsic value of the asset. Eventually, the bubble will burst and the price will return to its fundamental value, often resulting in sharp losses for those who bought in at the peak of the bubble.

An Asset Market Is Said to Experience a Speculative Bubble