Small changes in consumer demand can result in large variations in orders placed because of the:

• A. income elasticity of demand
• B. cross-price elasticity
• C. bullwhip effect
• D. law of diminishing marginal utility

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the context of the problem, which involves how small changes in consumer demand can lead to large variations in orders placed by firms in the supply chain.
2. Step 2: Recognize that the 'income elasticity of demand' measures how quantity demanded changes with consumer income, which does not directly explain large order variations from small demand changes.
3. Step 3: Note that 'cross-price elasticity' measures how the demand for one good changes in response to the price change of another good, which also does not explain the amplification of order variations.
4. Step 4: Recall the 'law of diminishing marginal utility' which describes how additional units of a good provide less additional satisfaction, unrelated to order fluctuations in supply chains.
5. Step 5: Identify the 'bullwhip effect' as the phenomenon where small fluctuations in consumer demand cause progressively larger fluctuations in orders up the supply chain, explaining the large variations in orders placed.