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Summary and Analysis of Us Stock Market and the Law of Supply and Demand

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The Theory of Supply and Demand as it Relates to the Stock Market
Supply and demand is one of the most important influences in any economic marketplace. In most industries the law of supply and demand is an accepted theory to explain the price of products and services. One industry that overlooked the significance of the law of supply and demand in the past is the stock market. Experts attributed the Stock Bubble of the 1990s to an overly simple theory. It was believed that rising prices in stocks were caused by an underlying rise of companies’ value. The price of stocks in the 1990s is today better understood as derived from a shortage of equities in the market (Oswin, 2005). The law of supply and demand is a fundamental concept in economics that explains market factors such as the quantity of a product or service demanded by consumers, the supply of products or services that suppliers are willing to produce and the relationship between supply and demand to create market equilibrium. The law of supply and demand also tries to explain what conditions in the market create changes in quantity demand and supplied in the market (Colander, 2008).
In his essay, The Relative shortage of Equities, Oswin (2005) describes some of the conditions that affect stock market activity and explains the theories behind the demand and supply of equities, which drive the prices of the market. According to Oswin (2005), the law of supply and demand is the cause behind bear and bull markets. Investors use the term bear market to describe markets in which the prices of stocks are stubbornly declining (Investopedia, 2014). A bull market is characterized by a strong upward trend in the prices of stocks (Investopedia, 2014). According to the law of supply and demand, the increases in the price of a product is caused by a shortage of supply or excess demand, and a decline in price

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