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Stock Prices: Why Do They Change?

Stock Prices: Why Do They Change?. Many theories are suggested about why prices in the stock markets change: Sun Spots! “Irrational Exuberance” Hem lines of skirts!. Stock Prices: Why Do They Change?. Law of Demand. Law of Demand – At lower prices, people choose to buy more.

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Stock Prices: Why Do They Change?

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  1. Stock Prices: Why Do They Change? Many theories are suggested about why prices in the stock markets change: • Sun Spots! • “Irrational Exuberance” • Hem lines of skirts!

  2. Stock Prices: Why Do They Change?

  3. Law of Demand • Law of Demand – At lower prices, people choose to buy more. • At higher prices, people choose to buy less. • Price and quantity demanded have an inverse or opposite relationship.

  4. Law of Supply • At higher prices, people choose to produce more. • At lower prices, people choose to produce less. • Price and quantity supplied have a direct or positive relationship.

  5. Supply and Demand E S D

  6. Change in Demand for Shares of Stock • People might be willing and able to buy more shares of Mighty Wings stock at various prices if expectations change. • Expect the share price to rise, dividend payment to increase, new product….

  7. Change in Demand E2 E D S

  8. Change in Supply • People sell shares more shares of a stock at alternative prices if they change their expectations. • Negative impact of changes in the industry, world events, uncertainties in the economy, opportunities to make alternative investments, ….

  9. Change in Supply E E2 D S

  10. Review • The Law of Demand states(re: stocks) that buyers choose to purchase more shares at lower prices and fewer shares at higher prices. • The Law of Supply states(re: stocks) that sellers choose to sell more shares at higher prices and fewer shares at lower prices.

  11. Review • An Equilibrium price exists when the quantity of shares demanded at that price equals the quantity of shares supplied. • Stock prices change as a result of changes in the supply and demand for shares of the stock in question.

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