1. For each stock in the stock market, the number of shares sold daily equals th
ID: 1250991 • Letter: 1
Question
1. For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm's shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock shares ever change?2. In 2001, an outbreak of foot-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hide prices, the supply of leather goods, and the price of leather goods?
Explanation / Answer
1) The fact that the quantity sold equals the quantity purchased is tautologous. For everyone share sold, there must have been someone buying it. The changes in price occur when buyers and sellers are negotiating over the price. If a seller is not willing to sell at a price low enough for a buyer, that share will not get sold. Similarly if a buyer isn't offering enough for the seller, there will not be a sale their either. The price changes to reflect both buyers and sellers opinions about the value of the share. If both perceive the share of the company's stock to be more valuable today than yesterday, the sellers will demand a higher price and the buyers will be willing to pay more. Conversely, if they both perceive it as being less valuable, buyers will demand a lower price, and sellers may be willing to sell at that lower price if they wish to get rid of the share. 2) The supply of cattle hides was greatly decreased (since there were millions fewer making it to the market). If the demand was the same, the prices of the hides went up. The supply of leather goods likely decreased as well, since the quantity of hides available to make the leather goods had decreased, and similarly, since the price of the hides to make the leather goods went up, the price of the leather goods likely increased as well.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.