Supply and demand is the cornerstone of economics, one of the social sciences. It is dealt with at length here, because technical analysis has its origins in supply and demand. Over the last 40 years "TA" has evolved (acquired many layers) to the extent its origins have been lost. The object here is to strip away the outer layers and get to the underlying source. If you do that you inevitably arrive back at volume. Drill down through technical analysis you come to supply and demand. Drill down through supply and demand you come to volume.
see article on technical analysis. and. drill down analysis in black box theory.
economics and collective behaviour
Supply and demand is the measurement of the economic desires of a social collective, a conceptual crowd. The result is not representative of any one individual within the social collective. is allied to .. Gustave Le Bon (1841-1931) analysis, the crowd submerges the individual character ... where ... "an agglomeration of people present very different characteristics from those of the individuals composing it". In gathering together, the crowd reach a state called the collective mind. see group decision making
economists
The primary laws of supply and demand evolved through the works of the following economists
Adam Smith, 1723-1790, Priest, economist, philosopher, Professor of Logic Glasgow University 1751
John Maynard Keynes, 1883-1946, father of modern economics, "Treatise on Probability" 1921
Paul A Samuelson, 1915- Professor Economics Massachusetts Institute Technology. Nobel Prize 1970
Richard G Lipsey, Phd, London, Professor Economics Simon Fraser University
Milton Friedman, Phd. 1912 - Professor, Nobel Prize 1976.
Joseph Granville, economist, extended these works to technical analysis 1970
theory of supply and demand
The theory of supply and demand is a central part of economics about price in competitive markets.
Demand is a force which tends to increase the price of an item, and supply a force which tends to lower price.
When the two forces balance one another, price will neither rise nor fall, and will stablilise.
This stability leads to "equilibrium" of price.
"Price equilibrium" exists when price is balanced at the point where the quantity supplied equals the quantity demanded.
At equilibrium, there is no competition to buy or sell, because everyone can buy or sell however much they wish, at the going price. Whenever the market moves away from equilibrium, competition will arise and tend to force it back.
An increase in the number of buyers will increase demand simply because buying power is increased.
An increase in the number of sellers will increase supply simply because selling power is increased.
The theory that prices are determined by the interaction of supply and demand - where
An increase in supply will lower prices unless accompanied by an increase in demand.
An increase in demand will raise prices unless accompanied by an increase in supply.
price determinant dictum
Macro : If government determines the price of money, the market will determine the supply.
Micro : If a manufacturer sets the price of a product, the market will determine the volume it will take.
If sellers wish to determine price, buyers will determine volume.
If buyers wish to determine price, sellers will determine volume.
Governments, manufacturers, buyers or sellers, cannot control both price and volume.
volume determinant dictum
Macro : If government determines the volume of money in circulation, the market will determine price.
Micro : If a manufacturer sets the volume of product produced, the market will determine the price received.
If sellers wish to determine volume, buyers will determine price.
If buyers wish to determine volume, sellers will determine price.
Governments, manufacturers, buyers or sellers, cannot control both price and volume.
supply and demand - what is it
Prices move up when the desire of buyers, exceeds the sellers desire.
Prices move down when the desire of sellers, exceeds the buyers desire.
from Paul A Samuelson, Economist, Massachussetts Institute of Technology USA The demand schedule.
At any one time a definite relationship exists between the market price, and the quantity demanded.
This relationship between price and quantity is called the demand schedule, or curve. The supply schedule - supply curve
The supply schedule is the relationship between market prices and the quantities sellers are willing to supply. Equilibrium of supply and demand
The equilibrium price is that price at which the quantity willingly supplied and the quantity willingly demanded are equal. Competitive equilibrium must be at the intersection point of the supply and demand curves. At this equilibrium the price is stable.
Sounds like charting doesn't it. Well it is. And it was written in 1960 by an economist who is a fundamentalist. Economics began in the 17th century with Adam Smith, a priest and economist, formalised by John Maynard Keynes, and perfected by Samuelson. It is the forerunner of todays technical analysis, the only difference being, there is now about 50 degrees of separation between the two. Whichever way you lean, an understanding of supply and demand is worthwhile. Samuelson's 1960 text has classic graphs of supply and demand curves and how they respond to one another. Adam Smith was appointed professor of logic at Glasgow university in 1751. Today's Technical Analysis juggernaut began to gather significant momentum in the 1970's. Courtesy of Granville, also an economist.
measuring supply and demand
How can supply and demand be measured. Net demand is measured by adding the volume when it's a buy and subtracting volume when it's a sale. (note the necessity of identifying a trade as a buy or sell). The resulting calculation is On-balance-volume as designed by Joseph Granville, in 1963, and modified for intraday trading. We run both On-balance volume and bid-ask counts. Each tell a different story. The bid-ask count identifies if the big hitters are participating in any price move.
