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A model used to illustrate the situation in which time lags in the response of one variable (e.g. supply) to a change in another variable (e.g. price) may introduce fluctuations into the economy. The cobweb is also known as the hog cycle following its use in explaining the observed pattern of hog prices. Depending on the parameters of the model, the fluctuations may increase (unstable cobweb), decrease (stable cobweb), or remain constant (trivial cycle) in magnitude from period to period. The underlying assumption for this kind of behaviour is adaptive expectations of economic agents (producers in the figure), rather than rational expectations.


Subjects: Economics.

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