Stock market is the backbone of Indian economy and there are two major or main stock market .
They are NSE and BSE due to various reason the demand of the share of the company some times decreases and some time increases .
and when demand of share increases price of share increases and when demand of share decreases the price also increases. => demand is directly proportional to price.
But according to law of demand "when price increases demand decreases and when price decreases demand increases" . that means there are a inverse relation between price and demand which is fully different from 1st case. So to understand how it happens in stock market we have to know about price mechanism .
Price mechanism is a tool of setting the price of a goods with respect to demand of that particular product and the supply of the product .
When demand of a particular product increases then supplier become unable to satisfy all
customer due to shortage of the goods and when he realizes that there is a shortage of goods gradually he increases the price with respect to increase of demand, and at last price of that product reaches to a certain limit when consumer think that its very costly he should have to decrease his demand and then again law of demand works.
They are NSE and BSE due to various reason the demand of the share of the company some times decreases and some time increases .
and when demand of share increases price of share increases and when demand of share decreases the price also increases. => demand is directly proportional to price.
But according to law of demand "when price increases demand decreases and when price decreases demand increases" . that means there are a inverse relation between price and demand which is fully different from 1st case. So to understand how it happens in stock market we have to know about price mechanism .
Price mechanism is a tool of setting the price of a goods with respect to demand of that particular product and the supply of the product .
When demand of a particular product increases then supplier become unable to satisfy all
customer due to shortage of the goods and when he realizes that there is a shortage of goods gradually he increases the price with respect to increase of demand, and at last price of that product reaches to a certain limit when consumer think that its very costly he should have to decrease his demand and then again law of demand works.
in above picture D= demand ,G=goods
P= PRICE ,S=supply
So this same things happen in stock market. when price of a particular share in a stock market is less than in another market then investors buy the share from lower one and sell it in another market on higher price . so that demand of the low price market increases so gradually the price is also increases till the price of the share become same in both market.
EXAMPLE : lets price of a share is rs 100 in BSE and 105 in NSE so all investor will start buying that share from BSE to sell in NSE for making profit of 5 rupees. but due to the high demand of BSE the price of Share in BSE will also increase. And due to excess supply in NSE the price of the NSE will decrease till the price of BSE=NSE .
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