economics hard True/False

The 'Cobweb Theorem' explains why agricultural markets often experience cyclical fluctuations in prices and quantities, due to the time lag between planting decisions and the actual harvest.

  1. True
  2. False

Answer: True

Farmers base their planting decisions on current market prices. If prices are high today, they plant more, leading to a massive oversupply and price crash at harvest time. Seeing low prices, they plant less the next season, causing a shortage and price spike. This delayed supply response creates a continuous, spiraling 'cobweb' pattern of boom and bust in agricultural commodity prices.

Topic Microeconomics - Agriculture
Exam Relevance UPSC Prelims, SSC CGL
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