Question

The correlation between supply and price is

• A. perfect positive
• B. perfect negative
• C. imperfect positive
• D. imperfect negative

Answer 1

The correct option is B perfect negative

Supply and price are both linked to the demand of a product. The higher the demand the higher the consumer(s) are willing to pay a price for a specific good and or service.

If supply is low but demand high then the price will be high because the opportunity cost of buying the product/service has also increased.

But if supply is high but demand low then the price will be low because the opportunity cost has now decreased.

Hence, both supply and price are opposite to each other.

Hence, the correlation is perfect negative.