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 DemandAmount 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 SupplyAmount 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 SheetPrice Round 1 Round 2 Round 3$504540353025201510$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 DemandLESSON 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