Question

Discuss the Cobweb Theory. Give Examples

Answer 1

According tothe cobweb theory the prices and output of many goods shows cyclical movements over long periods of time. Their price rise and fall in in a continued wave like pattern and their production in counter wave patter over time.The cobweb phenomenon is most common among agricultural commodities. For example suppose we planted a wheat seed and the production of wheat is more or less fixed tus an increase in price this year will have no effect on this year's yield. It will however effect the next year produce as farmer will take this into consideration before sowing seed.