What is COB Web hypothesis?

What is COB Web hypothesis?

The cobweb model or cobweb theory is an economic model that explains why prices might be subject to periodic fluctuations in certain types of markets. It describes cyclical supply and demand in a market where the amount produced must be chosen before prices are observed.

What is continuous cobweb theory?

In the case of continuous Cobweb the fluctuations in price and output continues repeating about equilibrium at same level. Once disturbed from position of equilibrium the economy moves cumulatively away from it into the doledrums of disequilibrium.

Which expectation is the cobweb theory based on?

Cobweb theory was first developed under static price expectations where the predicted price equalled actual price in the last period.

What are the assumption of cobweb theory?

Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather.

What is explosive oscillation in economics?

4.8, operates but the price fluctuations tend to become larger and larger and the market is subject to explosive oscillations, i.e., here price diverges away from equilibrium and the market is unstable. As already obtained, this will be the case if the demand curve is steeper than the supply curve.

What are the effect of cobweb theory to Nigerian agricultural sector?

The cobweb theory suggests that prices can become stuck in a cycle of ever-increasing volatility. E.g. if prices fall, many farmers will go out of business, the next year supply will fall. This causes price to increase. However, this higher price acts as incentive for greater supply.

What are the effect of cobweb theory to Nigeria agricultural sector?

What are the limitations of cobweb theory?

(1) Cobweb theory is not strictly a trade cycle theorem for it is concerned only with the farming sector. There are a good numerous others sphere of production where it remains quiet. (2) The theorem makes an assumption that the output is solely governed by price which in reality is an unrealistic assumption.

Who gave cobweb model?

economist Mordecai Ezekiel
Four years later, in 1938, economist Mordecai Ezekiel wrote the paper “The Cobweb Theorem”, which gave the phenomenon and its particular diagrams popularity.

What is explosive oscillation?

Divergent fluctuation (Explosive Oscillations) Here the slope of supply curve is less than the slope of demand curve which means the elasticity of demand is less than the elasticity of supply. This is unstable dynamic equilibrium as the prices and quantities tend to move away from the equilibrium price level.

What is the meaning of intertemporal?

Filters. Describing any relationship between past, present and future events or conditions. adjective. 5.