Demand and Supply
Supply is a relationship between quantity and price. Supply is the different quantities of a resource, goods, or service that will be offered for sale at various possible prices during a specific time period. Generally, the higher the price of something, the more of it will be offered for sale and vice versa.
Demand is, too, a relationship between quantity and price. Demand is the different quantities of a resource, goods, or service that will be purchased at various possible prices during a specific time period. Generally, the lower the price of something, the more of it will be purchased – and vice versa.
The interaction of supply and demand determines the prices and the quantities that will "clear" competitive markets. Changes in one market will affect relative price rations and cause changes in other markets as well.
The forces of supply and demand work most effectively in markets with a large number of sellers and buyers who are competing to sell or buy a relatively homogeneous product.
Money and Banking
The role of money and the banking system is an important part of the study of economics. Money is involved in nearly all economic transactions.
There are three different types of money: commodity money, fiat money, and bank money.
Money has four functions: [1] to serve as a medium of exchange; [2] to act as a unit of account; [3] to serve as a standard of deferred payments; and [4] to provide a store of wealth.
Bank is an institution that deals in money and its substitutes. Banks offer the widest range of services: current, deposit and saving account services; foreign exchange transactions; services in foreign trade payments; discounting bills of exchange; granting loans; investing management services; cash dispensers and teller machines; safe custody; economic information; banker’s credit cards and many others.
The two major classes of banks are commercial and central banks.
Stock Exchange
Stock Exchange is an organized market for the sale and purchase of securities such as shares, bonds, options and futures.
As a ready market for securities stock exchanges ensure their liquidity and encourage people to channel savings into business. This investment enables corporations to obtain funds to expand their businesses. As a pricing mechanism, stock exchanges determine prices that reflect the actual value of a company’s stock.
Stock exchange transactions involve the activities of brokers and dealers who facilitate the buying and selling of financial assets. Brokers execute trades on behalf of clients and receive commissions and fees in exchange for matching buyers and sellers. Dealers buy and sell from their own portfolios and earn income by selling a financial instrument at a price that is greater than the price the dealer paid for the instrument.
Trading is done in various ways: on a continuous auction basis or it may involve brokers buying and selling shares in a company for other people.
The first Stock Exchange was established in 1773 in London. Among the larger international exchanges are the London Stock Exchange, the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Chicago Board of Trade and others.