Question

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 price of stock shares ever change? What role do expectations of future share price play in causing changes in equilibrium share price and quantity traded? Essay Toolbar navigation BI VS EE11E A.A. 2

Answer 1

Price is one of the main factors that affect both demanded quantity and quantity supplied. Buyers always look at the price before determining the number of shares that they want to buy. In order for a seller to sell more shares during a period where there are many shares being sold at the same price by different sellers, then the price of the share must fall. Buyers are always trying to find shares at the lowest price, so in this way if the price of the share falls then it is more likely to have more buyers. Also sellers, might also try to sell more shares than the buyers would want so again, they have to drop the price if they want to achieve this. Conversely, if the price of shares rise then this can affect the quantity supplied as sellers may try to sell less shares and stock shares in order to sell them later on. The quantity of shares demanded must equal the quantity of shares supplies. If they aren’t equal and the quantity of shares demander is more for example, then buyers will have to offer higher prices to sellers for the shares, so the seller would provide them with the appropriate number of shares needed. That’s why the stock shares rise and fall.