Question

question 8 of 20 > gains from trade — end of chapter problem many commodities have futures markets associated with them. a futures market is essentially a prediction market that gathers information based on uncertain events that may impact the market. buyers enter into a financial contract where they agree to purchase a fixed quantity of the asset at a specified price on a certain date. in april 2019, the average price of unleaded gasoline was $1.26 per liter. meanwhile, the futures price for a june contract on unleaded gasoline was $1.13 per liter. a. the forecasted price in the futures market suggests that unleaded gasoline prices will by june of 2019. b. if the information transmitted in this market is accurate and unbiased, then the predicted june price is likely to be the actual price we will see in june.

Explanation:

Step1: Compare prices

In April 2019, the average price of unleaded gasoline was $1.26 per liter and the futures - price for a June contract was $1.13 per liter. Since $1.13<1.26$, the price is expected to decrease.

Step2: Analyze prediction accuracy

If the market information is accurate and unbiased, the futures price is a good predictor of the actual price. So the predicted June price is likely to be equal to the actual price in June.

Answer:

a. decrease
b. equal to