Which of the following accurately describes the bullwhip effect in economics?

• A. It refers to the rapid increase in employment following a recession.
• B. It refers to the phenomenon where small fluctuations in consumer demand lead to increasingly larger fluctuations in orders placed up the supply chain.
• C. It is the effect of government intervention causing market prices to swing unpredictably.
• D. It describes the tendency for prices to remain stable despite changes in supply and demand.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the bullwhip effect conceptually. It is a supply chain phenomenon where small changes in consumer demand cause progressively larger fluctuations in orders placed by retailers, wholesalers, and manufacturers upstream.
2. Step 2: Recognize that the bullwhip effect is not related to employment changes after a recession, so the option about rapid increase in employment is incorrect.
3. Step 3: Identify that the bullwhip effect is not about government intervention causing price swings, so the option mentioning government intervention is also incorrect.
4. Step 4: Note that the bullwhip effect does not describe price stability despite supply and demand changes, so the option about prices remaining stable is incorrect.
5. Step 5: Conclude that the correct description is the one stating that small fluctuations in consumer demand lead to increasingly larger fluctuations in orders placed up the supply chain.