The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2

-According to Figure 17.2, what sort of change in the market environment would increase the supply of stocks from S to S' and decrease the demand from D to D'?

Question

The figure given below shows the demand [D and D'] and supply [S and S'] curves of shares of stock.Figure 17.2
 
-According to Figure 17.2, what sort of change in the market environment would increase the supply of stocks from S to S' and decrease the demand from D to D'?

Quizplus · Accepted Answer

A decrease in demand and an increase in supply indicate that the market expects a decrease in the price of the stocks. News that the economy is likely to go into a recession soon would decrease the demand for stocks because investors may anticipate that firms will have lower profits in the future. At the same time, it would increase the supply because investors may try to sell their stocks before the price decreases further. Therefore, D is the correct answer. The other choices suggest positive expectations about the future of the economy or the firms, which would increase the demand for stocks and potentially the price, rather than decrease it.

The Figure Given Below Shows the Demand [D and D']