A typical supply curve demonstrates that the supply of a good increases as the price increases. This is called the normal supply curve and is based on the idea that as the price for the good increases more producers are willing to sell their product at the higher prices. For example if the price of oil increases then more oil producers will sell more oil to take in more revenue. If the price increases for a long enough time producers will increase their efforts to find more oil to satisfy demand.

The normal demand curve depicted shows how the demand for a good increases as the price decreases. This curve is based on the precept that people will often decrease their demand for an item as the price increases. As an example, if the price of meat becomes too high, people will reduce their consumption and look for alternative items. If the price of the good decreases then people will purchase more of the good thereby increasing demand.

You may have noticed that the lines at the extreme ends of the price axis become nearly horizontal or vertical. For example, on the demand curve the line becomes almost vertical at high prices and almost horizontal at low prices. A similar effect is noted on the -supply curve where the line becomes almost vertical at high prices and almost horizontal at low prices. These areas where the price line is almost horizontal or vertical are called price inelastic regions. Price inelasticity occurs where a change in price may slightly alter or not affect the demand or supply in a market. The range between the two extremes is called price elastic because the supply and demand is affected by price. The supply and demand of a good that is affected by price changes is called elastic, whereas the supply and demand of a good that is unaffected by price changes is termed price inelastic.

Since demand and supply are both a function of price, let's combine the supply and demand graphs. The point  where the supply and demand curves cross is called the equilibrium point and this point determines the fair market price of the good. The fundamental analyst focuses on the equilibrium price to determine what the price of a commodity should be. Analyzing the future supply and demand forces in the market helps the fundamentalist to predict what the price should be in the future.

If the analyst believes the demand for an item will increase and supply will remain constant then the equilibrium price should move higher. If supply increases with demand then the price may not change appreciably.