What is the Cobweb model?

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Cobweb model is an economic model that attempts to predict the relationship between the prices of a particular product and the level of supply and the demand of this product. It takes into account that there is no immediate response between supply and demand because it is delayed for production. Because this delay exists, it may be difficult to achieve a balance between the level of supply and the demand and the price of the product. Thus, named for a cobweb, which creates a chart indicating the amount created by a particular product and its price, the Cobvub model and its predictions suffer a little when specific good manufacturers do not work in accordance with rational expectations. If the supply of a product drops, then it is reasonable that the demand will be great and the price for the product will increase. On the other hand, excessive WISH product supply will reduce demand and cause the price to fall.

In fact, the production of any goods is instant and the Cobweb model is trying to take this timeConsider in the forecast for the price. If it takes a year to create a certain object and excessive demand for this product, then this demand will continue to grow this year. During that year, prices will continue to increase as the offer is constantly shrinking.

As soon as the production is increased to suit this growing demand, then, according to the Cobweb model, it will not only deploy demand, but can eventually grow it. Price levels are falling below the level from which they started. The production levels in response to this event turnover will drop back, the offer will be reduced again, and the balance between supply and demand will eventually return.

There is a natural error in the Cobweb model that occurs when the effects of product manufacturers are taken. Most manufacturers will eventually adjust the level of their supplies to predict the increase in demand for a particular product. This type of behavior that is based on the adaptive market expectations, unlike rational expectations, will affect the price level of the product, PThe delay time can be shortened and manufacturers can respond faster to market requirements.