By using supply & demand curves, explain how stock prices might vary.

pl6

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3 years ago

By using supply & demand curves, explain how stock prices might vary.

1. a)Air Canada lands air plane order for $3.2 billion with US airline company to consider expanding production facilities.
b)As energy prices increase and foreign producers flood the market, U.S Steel expects to lose $35 million in the fourth quarter.
c)A new Mitel division is working on a chip that will improve the capability of fibre optic networks.
d)As sales fall and inventories rise, BMW announces production cuts and temporary plant closures.

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bio_man

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Educator

3 years ago

Hi pl6

Maybe this document will help?

Attached file

Demand and Supply Curves.pdf (263.73 KB)

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pl6 Author

wrote...

3 years ago

Hi bio_man, I understand the idea of supply and demand graphs, but I wanted to know whether supply/demand is affected in each of the scenario's relating to stock prices.

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bio_man

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Educator

3 years ago

Oh, I figured an increase/decrease in price would affect stock prices the same way. Thoughts?

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pl6 Author

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3 years ago

Yes but that would depend on the situation, like for example a) Air Canada lands air plane order for $3.2 billion with US airline company to consider expanding production facilities. would demand or supply be affected in this case? And would it increase/decrease, if so, would it negatively or positively impact the stock market price. So I wasn't sure if my answer's were correct for these scenario's, I could show you what I think for all those scenario's and maybe you could tell me your thoughts, if you would like?

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bio_man

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Educator

3 years ago Edited: 3 years ago, bio_man

Quote

a)Air Canada lands air plane order for $3.2 billion with US airline company to consider expanding production facilities.

PRICE RISES

Quote

b)As energy prices increase and foreign producers flood the market, U.S Steel expects to lose $35 million in the fourth quarter.

PRICE DROPS

Quote

c)A new Mitel division is working on a chip that will improve the capability of fibre optic networks.

PRICE RISES

Quote

d)As sales fall and inventories rise, BMW announces production cuts and temporary plant closures.

PRICE RISES (I think, because this means the company is cutting costs, which is good for shareholders. It can also mean eliminating waste, which could mean leadership is making the hard decisions to take the company in the right direction.)

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pl6 Author

wrote...

3 years ago

Hi bio_man thanks, but also for each scenario would demand or supply be affected?
for d) I think your thinking it a lot deeply, I think it's a price decrease because the business itself is losing sales which result to a lot of left over inventory to pile up (not getting sold), meaning losing profits and revenues of the business, so the price of stocks are going to decrease.

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bio_man

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Educator

3 years ago

Quote from: pl6 (3 years ago)

d) I think your thinking it a lot deeply, I think it's a price decrease because the business itself is losing sales which result to a lot of left over inventory to pile up (not getting sold), meaning losing profits and revenues of the business, so the price of stocks are going to decrease.

From my experience trading stocks, a prominent company downsizing is a good move and usually affects the stock prices positively. It's up to you what you feel is a more responsible answer, that's why you're asked to provide a reason. Maybe based on your reason, either answer is fine.

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pl6 Author

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3 years ago

oh ok thanks bio_man
Also when the question says "use supply and demand curves to explain how stock prices may vary" do the only mean demand curves since stock prices are determined through the consumers demand? Because I'm not so sure.

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bio_man

wrote...

Educator

3 years ago

Good question. I think both curves would tell 2 sides of the same story.

Right?

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pl6 Author

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#10

3 years ago

Yeah for sure, but depends on the situation though. I think that since we are talking about the affect of stocks here from these cases, supply wouldn't be involved but rather demand only.

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