Chapter 11: Discussion “But because no other crop came even close to the value of poppies, we needed the threat of eradication to force farmers to accept less-lucrative alternatives…..
Explain how supply and demand influences the price of common stock.” jen
reply to students responce in 150 words with 1 reference
Explain how supply and demand influences the price of common stock.”
Supply and demand plays a part in the issue of common stock as there are only so many stock options available. In any supply and demand situation the greater the demand and lower the supply the higher the cost will go, and vise versa with lower demand and greater supply resulting in a price drop. This is good for companies since if a lot of people want to buy their stock, they can raise the prices by limiting the number of options available. This is good for those who already own stock since that means their stock options rise which makes them profit, if they sell. A company can issue more stock as they want, but issuing too much, raising the supply, without a change in demand can flat line the stock price. This may be fine for a company if more people continue buying stock since that is still profit to the company, but the stockholders want to see the value rise. A company also needs to consider that they will need to pay all the owner’s dividends, if they agreed to, so they will need enough profit to cover those costs as well as pay the investors when they choose to sell their options.
Ehrhardt, Michael C., and Eugene F. Brigham. Corporate Finance: a Focused Approach. South-Western Cengage Learning, 2014.