What is Supply and Demand in Stock Market

Supply and Demand are a most important factor which Force market when there is Buying and Selling Multiple times throughout the Market trading hours.

Supply and Demand share inverse relationship. The Company’s earning also changes the price, the action of price happens when Company’s Share value Increase or Decrease, and according to it, the Price will reflect in Stock Market.

Supply: Supply is Company. When the supply of certain Stock or commodity increase and demand remain the same then price will decrease. Demand and Supply share inverse relationship, they are opposite to each other. When supply increase price decrease, and when price decrease Consumer will buy more quantity. The company will always try to sell at the high price when low in quantity.

Demand: Demand is Consumer. When the demand of certain Stock or commodity increase and the supply remain the same, the price will increase. Demand and Supply share inverse relationship, they are opposite to each other. When demand increases price also increases, and when price increase Consumer stops buying and wait for the best price to Buy. The consumer will always try to buy more quantity at the low price and less quantity or no quantity at the high price.

Psychological Factors of Demand and Supply: As our psychology view, we buy stock or any commodities when its price is lower so that we can buy more quantity of that particular stock, but it doesn’t happen every time. Understanding Supply and Demand is easy but sometimes the buyer will look several factors like if the price is really worth that price, sometimes there are many competitors, this really affects the Company’s business and Profits in short and long run. Sometimes we have Likes and Dislikes of certain stocks products and we sometimes find Substitute product with better price and quantity. It is very certain that we only buy the company we trust, so assuming that this company will do good or bad has great impact individually and overall market will follow the trend. And because of many substitutes available in the same category, every product’s Supply and Demand will be affected. If the product is better than substitutes available in the market for less price and it’s not worth, then they will buy premium product only for little higher price, the consumer can be stick to it in long run if they really like the product and don’t want to go for another Substitute even if it is available for less price, and if any product performance disappoint the consumer will have fewer Buyers Obviously.

Market Surpluses and Shortages:

(i). Market Surpluses: Market Surplus happens when there are excess supply and less demand in the market, and because of this, manufacturer tries to balance the Price, so that it can reach the Equilibrium level by simply falling. Mostly they will try to lower the Price and in the result, demand automatically increases. In order to stay competitive in the market, many Manufacturer will lower their Price of their product so that excess supply will be slowly reduced by increasing demand. In a simple term, if the market price is above the equilibrium price, quantity supplied is more than quantity demanded, creating a surplus. The market will fall to match the Price and Quantity.

(ii). Market Shortages: Market Shortage happens when there are more demand and less supply in the market, and because of this manufacturer tries to balance the Price, so that it can reach the Equilibrium level and the price starts rising. Mostly they will try to raise the price and sell for Premium to the limited buyer, this way demand will decrease and the price will reach to Equilibrium level slowly. In a simple term, if the market price is below the equilibrium price, quantity supplied is lesser than quantity demanded, creating a shortage. Because of this Market price will rise to match the Price and Quantity.

Impacts on Equilibrium: Measuring the equilibrium the way, quantity of demanded and supplied will help the Company or Manufacturer to stabilise and survive in the market for a longer duration so that Company, products and the whole economy Market will not suffer during Liquidity. Equilibrium is the combination of these forces that determine how much of a goods or service is produced, supplied and consumed in the market at which price and quantity. When Level of Supply and Demand is in the Stable state, it is said to be the equilibrium Price and Quantity, where the quantity demanded is equal to the quantity supplied.

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