Regularity of market price signals, price expectations and producers´ decision - the case of cotton planting acreage changes in China

Based on the stable and consistent price expectation from producers, the popular supply theory believes that the price is an effective signal for producer decision making, and that supply quantity is thus decided by the market price given that other conditions are unchanged. This paper proposed that whether price could be an effective signal for producers depends on the regularity of price changes. If the changes of price itself show a clear trend, producers are likely to form a stable and consistent expectation about the future price, then the past price would be an effective signal for producers, otherwise, it would not be effective. Underlying such contexts, their decisions should be adjusted appropriately. Taking the change of China cotton planting acreage from 1979 to 2005 as a example, this paper attempts to test the above hypotheses by empirical study. This paper will contribute to the price expectations theory, and provide a theoretical basis for the modification of producers´ decision behaviors model.