Backward linkages arise when
A) the production of one good decreases demand in industries that supply components for that good.
B) the production of one good increases the profits in industries that supply components for that good.
C) the production of goods for export increases demand in industries that supply components for that good.
D) the production of goods that were previously imported increases demand in consumers for that good.
E) the production of one good increases demand in industries that supply components for that good.

Question

Quizplus · Accepted Answer

Backward linkages refer to the indirect effects of one industry's production on other industries that supply components or inputs for that production. Choice E correctly describes this situation, as the production of one good would increase demand for the components or inputs supplied by industries that provide materials, parts, or other goods necessary for the production of that good. The other choices are incorrect: A describes a situation where the production of one good reduces demand for components, which is a case of forward linkages; B is partly correct but does not capture the indirect effects on other industries; C describes a situation where the direction of causality is reversed, as the production of goods for export is itself a result of the backward linkages created by exporting industries; and D mixes up the effects on producers and consumers, and also does not capture the indirect effects on other industries.

Backward Linkages Arise When