Correlation between demand and price of goods

Under normal times, there is a correlation between the demand for goods and their prices. This correlation can either be positive, negative or zero.

Positive correlation

When there is a positive correlation between demand and price, it means that as the demand for goods increases, their prices also increase. This happens because when there is high demand for a particular good, there is limited supply, and this pushes the price up.

Negative correlation

On the other hand, when there is a negative correlation between demand and price, it means that as the demand for goods increases, their prices decrease. This happens when there is an excess supply of goods, and sellers have to lower their prices to attract buyers.

Zero correlation

When there is zero correlation between demand and price, it means that changes in demand have no effect on the price of goods. This can happen when the market for the goods is saturated, and there is no room for any further increase in demand or decrease in price.

Conclusion

In conclusion, under normal circumstances, the demand for goods and their prices are correlated. The correlation can either be positive, negative or zero, depending on the market conditions. However, it is important to note that external factors such as government policies, natural disasters, and pandemics can disrupt this correlation and cause unexpected changes in the demand for goods and their prices.

When price of a commodity increases under normal conditions , demand will be decreased