Learning Target: I can describe the operation of the Stock Market.

Do Now (🏫 Google Classroom): Has the new president been good or bad for the economy?

The Dow Jones Industrial Average:
Dowhat now?

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

Often referred to as the Dow, the DJIA is one of the oldest and single most watched index in the world. The DJIA includes companies like General Electric, Disney, Exxon and Microsoft. When people say the market is "up" or "down," they are generally referring to the Dow.

What is a stock?

When you buy stock you become part owner of a public company—no matter how many shares you own. If the stock price exceeds what you paid for it, your investment increases in value. If the stock price goes lower than what you paid for it, your investment decreases in value. You risk only the money you invest.

Not all companies are public. Private companies are composed of an individual/family or a small group of investors that have private sources for funding growth; their shares are not for sale to the general public. Mars Corp, the snack food giant, is privately held. Google, the search engine company, was privately held until 2005, when it went public, offering its stock for sale.

If a company’s product or service is in great demand, demand may outstrip the ability of banks and venture capitalists (who privately supply funding) to provide money for the company’s expansion to meet that demand. At that point company leaders may decide to “go public.”

Company management goes to investment bankers to negotiate an agreement to underwrite a stock offering known as an IPO (Initial Public Offering). The investment bankers buy all the shares that will be offered to the public at a set price (primary market). In other words, they underwrite the IPO. The investment bankers then sell the stock to the general public (secondary market) in the hopes of making a profit.

Planet Money #443: Don't Believe The Hype

You may have heard about a big milestone coming up for the Dow Jones Industrial Average. It's been all over the news: The Dow is creeping up towards twenty thousand. It's been hovering just below that mark for weeks now. And people are kind of freaking out.

But here's the thing about the Dow: It doesn't matter.

So, today, to contribute to the frenzy over Dow 20,000, we explain how the Dow is calculated—and why you should ignore it.


  1. Why does the DOW have power?
  2. Why is the DOW a problematic way to measure the economy?
  3. How could you refute the claim that an increase in the Stock Market improves employment?



The normal person's guide to the stock market

When you finish, think like an economist:
  1. Why do we use the Stock Market as a measure of the entire economy?
  2. How does the Stock Market relate to our most basic economic principles: scarcity (of land, labor, capital) and opportunity cost?