With reference to the Cobweb model consider the following statements 1 It is used to explain irregul...........

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With reference to the Cobweb model, consider the following statements:

1. It is used to explain irregular fluctuations in prices and quantities that may appear in some markets, such as agriculture

2. For convergent fluctuation, the elasticity of the demand curve, in absolute terms, is lower than the elasticity of the supply curve

Which of the following statements is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

The Cobweb model is primarily used to explain the fluctuations in prices and quantities in markets like agriculture, where production lags are significant. The first statement is accurate.

However, for the Cobweb model to exhibit convergent fluctuations, the elasticity of the supply curve must be less than the elasticity of the demand curve in absolute terms. The second statement is incorrect.

Hence, the correct statement is 1 only.