The cobweb theorem:
A) tells farmers how much of their crop to plant this year.
B) assumes that the supply of farm products is fixed.
C) assumes that farmers determine this year's production on the basis of last year's production.
D) assumes that farmers determine this year's production on the basis of last year's prices.

Question

Quizplus · Accepted Answer

The cobweb theorem suggests that farmers base their production decisions on the prices from the previous year, leading to cyclical fluctuations in supply and prices.

The Cobweb Theorem