l earning, e arning, and i nvesting for a n ew g eneration © c ouncil for e conomic e ducation, n...
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LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
HOW ARE STOCK PRICES DETERMINED?
LESSON 14
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Discovering the Law of Demand
Amount you pay for one
cup of Stomping Grounds Coffee
1 2 3 4 Total
$10
$5
$4
$3
$2
$1
$0 (free coupons)
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.1
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Discovering the Law of Supply
Amount you would receive as wages for one hour of
work
1 2 3 4 Total
$30
$25
$20
$15
$10
$0 (volunteer)
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.2
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
The Laws of Demand and Supply
• Law of Demand: At lower prices, people choose to buy more. At higher prices, people choose to buy less.
• Law of Supply: At higher prices, people choose to produce more. At lower prices, people choose to produce less.
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.3
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Classroom Tally Sheet
Price Round 1 Round 2 Round 3
$50
45
40
35
30
25
20
15
10
$5
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.4
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Supply and Demand forMighty Wings, Inc. Shares
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.5
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Change in Demand forMighty Wings, Inc. Shares
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.6
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Change in Supply forMighty Wings, Inc. Shares
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.7
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
The Role of ExpectationsDemand in Stock MarketsPeople are more likely to buy stock in a given company if the have positive expectations regarding the success of that company. They might expect:
■ The share price to increase.■ An improved dividend payment.
Supply in Stock Markets• People are more likely to sell stock in a given company if they have
negative expectations regarding the success of that company.They might expect:
■ The stock price to decrease in response to changes in the industry, world events, or other uncertainties.
■ The dividend to decrease.■ Better opportunities to purchase other stocks, bonds, or other types of
investments.
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
SLIDE 14.8
LEARNING, EARNING, AND INVESTING FOR A NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
Review of Supply and Demand
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
• The law of demand states (regarding stocks) that buyers choose to purchase more shares at lower prices and fewer shares at higher prices, all else constant.
• The law of supply states (regarding stocks) that sellers choose to sell more shares at higher prices and fewer shares at lower prices, all else constant.
• An equilibrium price exists when the quantity of shares demanded at that price equals the quantity of share supplied.
• Stock prices change as a result of changes in the supply of and demand for shares of the stock in question.
SLIDE 14.9