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 prices of stock shares ever change?

Use the demand and supply analysis and discuss in detail.

Answer 1

Price of the stock changes because the demand and supply of the stock changes and price is the variable that keep the market in the equilibrium, for example if the demand for a stock increase and the increased demand cannot be met by supply then the price will increase, this increased price will reduce the demand and increase the supply, this will continue to the point where the demand and supply will be equal.

Similarly, of the supply of a stock is more at a price but people do not want to buy it at that price, then to attract more people the price will fall and this will increase the demand and reduce the supply, the price will fall to the level where the again the demand and supply will be equal, that is why its the price that changed and keep the demand and supply equal.