Direct and Inverse Relationships in Economics

Direct Relationship between Price and Quantity Demanded

The correct statement is (b) price and quantity demand of a good have a direct relationship. This is because when the price of a good or service increases, the demand for that good or service will decrease, and when the price of a good or service decreases, the demand for that good or service will increase. This relationship is known as a direct relationship or a positive relationship.

Inverse Relationship between Supply and Cost of Production

The statement (a) supply is inversely related to its cost of production is also correct. This is because when the cost of production for a good or service increases, the supply of that good or service will decrease, and when the cost of production for a good or service decreases, the supply of that good or service will increase. This relationship is known as an inverse relationship or a negative relationship.

Impact of Taxes and Subsidies on Supply

The statement (c) taxes and subsidy has no impact on the supply of the product is incorrect. Taxes and subsidies can have a significant impact on the supply of a product. For example, when taxes are imposed on a good or service, the cost of producing that good or service increases, which can lead to a decrease in supply. On the other hand, when subsidies are provided to producers of a good or service, the cost of producing that good or service decreases, which can lead to an increase in supply.

Impact of Seasonal Changes on Supply

The statement (d) seasonal changes have no impact on the supply of the commodity is also incorrect. Seasonal changes can have a significant impact on the supply of a commodity. For example, during the winter months, the supply of fresh fruits and vegetables may decrease due to the colder weather and shorter growing seasons. Similarly, during the summer months, the supply of heating oil may decrease due to lower demand.

Conclusion

In conclusion, it is important to understand the direct and inverse relationships in economics, as well as the impact of taxes, subsidies, and seasonal changes on supply. By understanding these relationships, individuals and businesses can make informed decisions about buying and selling goods and services.