All real world markets, like those for foreign currency, can be analyzed in terms of demand and supply. In all markets, an increase in demand will drive up the equilibrium price and quantity while a decrease in demand pushes the price and quantity traded down. An increase in supply results in a lower equilibrium price and a greater equilibrium quantity whereas a decrease in supply creates a higher price and a lower quantity traded in a market. Changes in demand and supply can also change at the same time. The effect on either the price or the quantity traded is uncertain, and depends on the magnitude of the changes in demand and supply.

Markets don't always have socially desirable outcomes. When markets fail government often intervenes. For example, government may impose a price ceiling (a price set by government below equilibrium) or a price floor (a price set by government above equilibrium). Government may also impose an excise tax or a tariff on a good. Sometimes government intervention fails to improve the market outcome. Demand and supply analysis helps us predict the impact of government intervention in markets as well as the impact of a third-party payer system on equilibrium price and quantity.