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Question

If rxy is positive the relation between X and Y is of the type

(a) when Y increases X increases

(b) when Y decreases X increases

(c) when Y increases X does not change

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Solution

(a) If r is positive the two variables move in the same direction. e.g., when the price of coffee rises, the demand for tea also rises as coffee

is a substitute for tea. Therefore, the r between the price of coffee and demand for tea will be positive.


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