jmherbenerDemand and supply analysis is done to explain the level of and changes in the price of a good. For this reason, the graph of demand (supply) is drawn to depict a person’s choice to buy (sell) a particular amount of a good at each of a series of prices. The law of demand (supply) states that at a lower price a person will buy (sell) not less (not more) of a good if all the other factors that affect his buying (selling) are kept the same. Because of the laws of demand and supply, the market will clear only at one price or a limited range of prices. The price of a good will be at the level that clears the market because doing so generates the greatest possible benefits to the traders. So to analyze the level of price, the economists holds all the factors affecting buying and selling the same except the price itself.
To analyze changes in the price of a good, the economist conjectures a change in one or more of the non-price factors affecting buying and selling. Let’s suppose the preferences of gun owners to buy 9mm ammunition increases, meaning they are willing to buy more ammunition at the current level of price. Then the entire demand curve will shift to the right. If the level of price fails to rise, the market will not clear, instead there will be excess demand. Sellers raise price in response to the increase demand and because the price is higher, they increase the quantity they supply. The market will then clear at a higher price.