Economics

1. CHAPTER EIGHT
THE STOCK MARKET

2. What are the options when a
proprietorship continues to grow?

3. STOCK

4. stock
shares or portions of ownership in a
corporation

5.  Common stock
 Represents true ownership of the firm
 Last to be paid if the firm fails
 May receive dividends
TYPES OF STOCK

6. dividends
a distribution of a portion of the
corporation’s profits

7.  Preferred stock
 Receive dividends before common
shareholders
 If company fails, receive their portion of
leftover revenue before common
shareholders
 No right to vote on matters of
importance

8.  Owners may or may not choose to offer
their stock for public sale.
 Initial public offering (IPO)
 Capital raised by selling stock is used
for various business needs.
SELLING STOCK

9.  Reasons for buying stock:
 Make a profit
 Receive dividend payments
BUYING STOCK

10. 1. Owning shares of stock not only makes a
person a partial owner of a corporation
but also gives that person what other
opportunity?
2. What is the most prevalent type of stock
that most corporations offer?
REVIEW QUESTIONS

11. 3. Why do corporations sell stock?
4. What are the two principal reasons that
individuals purchase shares of stock?
REVIEW QUESTIONS

12. STOCK MARKETS

13.  Stock exchanges
 First: Britain and North Holland
 Became widespread by 1850
 Philadelphia Stock Exchange was the
first stock exchange in the US
 New York Stock Exchange
EARLY MARKET DEVELOPMENT

14.  May be a literal or virtual location
 People come together face-to-face or
electronically
 Prices reflect what consumers are willing
to pay
ORGANIZATION

15.  New York Stock Exchange (NYSE)
 Most well-known and reputable stock
exchange in the world
 NASDAQ
 “Over-the-counter” trading
 No physical trading floor
EXAMPLES OF MARKETS

16.  American Stock Exchange (AMEX)
 Regional exchanges
 Stock exchanges in other countries

17.  A stock index is used to group categories
of stocks and report the behavior of
prices within these categories.
 Dow Jones Industrial Average (DJIA)
 Standard and Poor’s 500 (S&P 500)
STOCK INDICES

18. Many stock exchanges have both
composite indices and indices for
specific industries.

19. 1. In what two ways is a stock market like
other markets?
2. What is the most well-known stock
exchange in the world, and what accounts
for its importance?
REVIEW QUESTIONS

20. 3. What is the largest US stock exchange
that has no trading floor?
4. What is the most well-known stock index
in the United States, and who developed
it?
REVIEW QUESTIONS

21. THE MARKET AND THE ECONOMY

22. When the nation’s economy is moving
forward, corporations will be looking
for needed capital and investors will
seek to increase their income.

23.  A venue for the sale of stock
 Opportunities for individuals to invest
 Mutual funds: privately managed stock
portfolios
 Stock markets provide information to the
marketplace
THE IMPORTANCE OF STOCK MARKETS

24.  The 1920s: Prosperity and speculation
 Speculation: buying and selling stocks
for the purpose of taking advantage of
short-term price changes
 Speculation is risky!
 In the 1920s, stock prices rose due to
expectations rather than reality.
PROBLEMS AND SAFEGUARDS

25. speculative bubble
when stock prices rise in an industry or
across the entire market simply because
of expectations and exceed the
corporations’ true value

26.  The speculative bubble burst in 1929.
 Led to the Great Depression
 Securities and Exchange Commission
 Corporations must provide accurate
and current information to the public
 Regulation of stock exchanges and
brokers

27. 1. List three reasons that stock markets are
important to the economy.
2. According to the text, what are two
distinctions between gambling and
stock ownership?
3. List two circumstances contributing to the
crash of 1929.
REVIEW QUESTIONS

28. 4. What is the danger of speculation?
5. When and why was the SEC founded?
REVIEW QUESTIONS