Question

Which of the following is true?

i. There is a direct relationship between price and quantity demanded
ii. There is a direct relationship between price and quantity supplied
iii. There is an inverse relationship between price and quantity demanded
iv. There is an inverse relationship between price and quantity supplied
v. There is a direct relationship between quantity demanded and quantity supplied
A. i and v
B. i and ii
C. ii and v
D. ii and iii
E. iii and v

Answer 1

The true statements as per economic principles are 'There is a direct relationship between price and quantity supplied' and 'There is an inverse relationship between price and quantity demanded', corresponding to the law of supply and law of demand respectively.

Step-by-step explanation:

The student has asked which statements are true regarding the relationship between price and quantity demanded/supplied. According to the law of demand, there is an inverse relationship between price and quantity demanded. As price increases, quantity demanded decreases, and vice versa, ceteris paribus (all other factors being equal). Conversely, the law of supply states that there is a direct relationship between price and quantity supplied.

This means that a higher price leads to an increase in quantity supplied, and a lower price leads to a decrease in quantity supplied, again ceteris paribus.

Therefore, the statements ii. 'There is a direct relationship between price and quantity supplied' and iii. 'There is an inverse relationship between price and quantity demanded' are both true. Statement v.

'There is a direct relationship between quantity demanded and quantity supplied' is not inherently true; the quantity demanded and supplied are related through the market mechanisms that bring about equilibrium but are not directly related in the sense implied by the question. Hence, the correct answer is D. ii and iii.