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Supply and Demand

In economics, virtually everything ultimately boils down to supply and demand. Prices are a result of supply and demand. Many economic indicators are there to guide us so we can make a likely assessment of supply and demand in the overall economy. When you look at any sort of economic indicator, the trail you want to follow is the one that asks what effect there’ll be on supply and demand.

For example, if unemployment is rising, how will this affect the economy? Well, with fewer people at work and companies cutting back on their workforce, it’s likely that those people will have less money to spend. Those who are still working might not feel so secure in their jobs, so they will be more inclined to beef up their savings and cut back on spending. The result could be that demand for various goods and services like leisure and consumer goods (such as furniture) will decrease, meaning less revenue and less profit for companies in the consumer goods, leisure, and retailing sectors. What do you imagine would happen to stocks in those sectors? Of course, they’d be inclined to go down just merely at the whiff of a slowdown because more traders will sell the stocks in anticipation of inferior results in the future.


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