LESSON 14 HOW ARE STOCK PRICES DETERMINED LEARNING

LESSON 14 HOW ARE STOCK PRICES DETERMINED? LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 1 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? 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) LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 2 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? 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) LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 3 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? The Laws of Demand 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. LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 4 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? Classroom Tally Sheet Price Round 1 Round 2 Round 3 $50 45 40 35 30 25 20 15 10 $5 LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 5 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? Supply and Demand for Mighty Wings, Inc. Shares LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 6 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? Change in Demand for Mighty Wings, Inc. Shares LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 7 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? Change in Supply for Mighty Wings, Inc. Shares LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 8 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? The Role of Expectations Demand in Stock Markets People 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. LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY

SLIDE 14. 9 LESSON 14 –HOW ARE STOCK PRICES DETERMINED? Review of Supply and Demand • 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. LEARNING, AND INVESTING FOR A NEW GENERATION ©COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY