Question

The correlation between supply and price is
A) Perfect positive
B) Perfect negative
C) Imperfect positive
D) Imperfect negative

Answer 1

From the given question we have been asked about the relation between the supply and price. For solving these kinds of theory questions we will use the definitions and elaborately explain the relation between the price of a product and the supply of the product. We will get the solution by using the demand and the opportunity cost of the product and bring the correlation. So, our solution will be as follows.

Complete step by step solution:
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 perfectly negative.

Note: Students should be able to understand the relation and must know the terms like supply, price, demand and opportunity cost and have good knowledge among them to solve these kinds of questions.