The basic laws of supply and demand are the lifeblood of a free market system. In a free market system, economists and analysts make the assumptions that consumers and producers will act accordingly in mutually beneficial exchanges where both parties will be better off for the transaction, all else equal. The assumptions made are that consumers will demand more of a product if the price is lower and vice versa if the price is higher. Producers will be more willing to supply products at higher prices and vice versa goes for the lower price. We assume consumers and producers will act accordingly to market shocks, whether positive or negative, as well. For example, assume a natural disaster wipes out 30% of wheat in the Midwestern U.S. This will have a shock on the bread market that affects supply. We assume this will not change overall demand for bread consumption however. We also assume that both producers and consumers react to government policies. Again, let's assume business taxes are increased across the board. This will have an effect on supply, all else equal. Consumption taxes might adversely affect consumers instead. With economics, since we are dealing with human behavior, we always assume the consumer or producer is a rational decision maker. However, we know that many things can affect human decision making. Humans do not always respond exactly how we predict even if market forces suggest otherwise. Therefore, it is impossible to 100% predict decisions but economists and analysts use some basic guidelines to do their best.