Positive correlation exists when two variables move in the same direction. A basic example of positive correlation is height and weight—taller people tend to be heavier, and vice versa. In some cases, positive correlation exists because one variable influences the other. In other cases, the two variables are independent from one another and are influenced by a third variable. The field of economics contains many cases of positive correlation. In microeconomics, demand and price are positively correlated. In macroeconomics, positive correlation exists between consumer spending and gross domestic product (GDP).

Postive Correlation in Microeconomics

Microeconomics, which analyzes individual consumers and firms, features many instances of positive correlation between variables, one of the most common being the relationship between demand and price. When students study microeconomics and statistics, one of the first concepts they learn about is the law of supply and demand and the influence it has on price. The supply and demand curve shows that when demand increases without a concomitant increase in supply, a corresponding increase in price occurs. Similarly, when a demand for a good or service decreases, its price also drops.

The relationship between demand and price is an example of causation as well as positive correlation. An increase in demand causes the corresponding increase in price; the price of a good or service increases precisely because more consumers want it and therefore are willing to pay more for it. When demand decreases, that means fewer people want a product and sellers must lower its price to entice people to buy it. 

In contrast, supply is negatively correlated with price. When supply decreases without a corresponding demand decrease, prices increase. The same number of consumers now compete for a reduced number of goods, which makes each good more valuable in the eye of the consumer.


Positive correlation also abounds in macroeconomics, the study of economies as a whole. Consumer spending and GDP are two metrics that maintain a positive relationship with one another. When spending increases, GDP also rises as firms produce more goods and services to meet consumer demand. Conversely, firms slow production amid a slowdown in consumer spending to bring production costs in line with revenues and limit excess supply. (For related reading, see: Macroeconomics: Supply, Demand and Elasticity.)

Like demand and price, consumer spending and GDP are examples of positively correlated variables where movement by one variable causes movement by the other. In this case, consumer spending is the variable that effects a change in GDP. Firms set production levels based on demand, and demand is measured by consumer spending. As the level of consumer spending moves up and down, production levels strive to match the change in demand, resulting in a positive relationship between the two variables. (For related reading, see: What Consumer Spending Reveals About the Economy.)

  1. How should I interpret a negative correlation?

    Learn more about correlation and how businesses analyze variables. Find out how negative correlations are interpreted by ... Read Answer >>
  2. How do fund managers use correlation to create portfolio diversity?

    Read about how contemporary investment fund managers use the concept of correlation to add diversification among assets in ... Read Answer >>
  3. When does positive correlation prove causation?

    When is correlation causation? Never. Use correlation wisely, the way a true statistician would. Don't get fooled by fancy ... Read Answer >>
  4. How is correlation used differently in finance and economics?

    Take a look at the similarities and differences between how statistical correlation is applied in economics as opposed to ... Read Answer >>
  5. What Does it Mean if the Correlation coefficient is Positive, Negative, or Zero?

    When a coefficient is greater than zero, it is a positive relationship; when the value is less than zero, it is a negative ... Read Answer >>
  6. Is there a correlation between inflation and house prices?

    There is a correlation between inflation and house prices - in fact there are correlations between inflation and any good ... Read Answer >>
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