What is the cobweb theorem in simple terms?

When a crop is expensive this year, farmers plant more and the price collapses next year; seeing that, they plant less and the price rises again. The model explains this repeating pattern.

When do the price swings die out?

The less responsive supply is to price compared with demand, the more the swings shrink and converge to equilibrium. If supply is more responsive, the swings can grow.

Cobweb Theorem

📈 Economics By CampusDown Wiki Editorial Team Last updated October 26, 2026

The cobweb theorem is an economic model that explains how prices and quantities alternate above and below equilibrium when supply responds to price with a lag, as when farmers decide next year's output on the basis of this year's price. The name comes from the cobweb-like path traced on a price–quantity diagram, and Mordecai Ezekiel (1938) gave it its classic systematic statement.

Contents

1. Origins and basic structure
2. Conditions for convergence, divergence and cycles
3. Expectations and modern extensions
4. FAQ
5. References

Origins and basic structure

In the late 1920s European economists noticed that the prices of farm products such as pork rose and fell in regular cycles lasting several years. In Germany, Hanau (1928) analyzed the cycle in hog prices, and Schultz, Ricci and Tinbergen (1930) sought to explain such cycles with supply and demand curves. Kaldor (1934) coined the name cobweb theorem, and Ezekiel (1938) published the classic synthesis. In the basic model farmers set output on the assumption that this year's price will persist next year. A high price this year leads to larger output and a lower price next year; seeing the low price, farmers cut production the following year, and the price rises again.

Conditions for convergence, divergence and cycles

Ezekiel (1938) showed that the outcome depends on the relative slopes of the demand and supply curves. If supply is less responsive to price than demand, the oscillations dampen and converge to equilibrium; if supply is more responsive, they grow and diverge; and if the two slopes are equal, the cycle continues with constant amplitude. Examining British bacon production and the pig cycle, Coase and Fowler (1935) pointed out that farmers' expectations are not so naive. Freeman (1976) offered a labor market example in which the supply of new engineers and their starting salaries cycle with a lag of several years, showing that the model applies beyond agriculture.

Expectations and modern extensions

The cobweb model became a starting point for debates about how to model expectations. Nerlove (1958) introduced adaptive expectations, in which forecasts are gradually revised in light of past errors, and showed that this can dampen oscillations. Muth (1961), examining the model critically, proposed the rational expectations hypothesis, arguing that rational producers would not keep making systematically wrong forecasts. Rosen, Murphy and Scheinkman (1994) explained cattle cycles as biological lags under rational expectations. Chiarella (1988) and Hommes (1994), meanwhile, showed that combining nonlinear supply and demand with adaptive expectations can produce chaotic dynamics rather than regular cycles. The model is treated, like the Lotka–Volterra equations, as a classic case of oscillations arising from simple rules.

FAQ

What is the cobweb theorem in simple terms?: When a crop is expensive this year, farmers plant more and the price collapses next year; seeing that, they plant less and the price rises again. The model explains this repeating pattern.
When do the price swings die out?: The less responsive supply is to price compared with demand, the more the swings shrink and converge to equilibrium. If supply is more responsive, the swings can grow.

Sources reviewed: 2026-10-26

References

Ezekiel, M. (1938). The cobweb theorem. Quarterly Journal of Economics, 52(2), 255–280.
Kaldor, N. (1934). A classificatory note on the determinateness of equilibrium. Review of Economic Studies, 1(2), 122–136.
Schultz, H. (1930). Der Sinn der statistischen Nachfragekurven. Bonn: Kurt Schroeder.
Ricci, U. (1930). Die „synthetische Ökonomie“ von Henry Ludwell Moore. Zeitschrift für Nationalökonomie, 1(5), 649–668.
Tinbergen, J. (1930). Bestimmung und Deutung von Angebotskurven. Zeitschrift für Nationalökonomie, 1(5), 669–679.
Hanau, A. (1928). Die Prognose der Schweinepreise. Vierteljahrshefte zur Konjunkturforschung, Sonderheft 7. Berlin.
Nerlove, M. (1958). Adaptive expectations and cobweb phenomena. Quarterly Journal of Economics, 72(2), 227–240.
Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica, 29(3), 315–335.
Coase, R. H., & Fowler, R. F. (1935). Bacon production and the pig-cycle in Great Britain. Economica, 2(6), 142–167.
Rosen, S., Murphy, K. M., & Scheinkman, J. A. (1994). Cattle cycles. Journal of Political Economy, 102(3), 468–492.
Chiarella, C. (1988). The cobweb model: Its instability and the onset of chaos. Economic Modelling, 5(4), 377–384.
Hommes, C. H. (1994). Dynamics of the cobweb model with adaptive expectations and nonlinear supply and demand. Journal of Economic Behavior & Organization, 24(3), 315–335.
Freeman, R. B. (1976). A cobweb model of the supply and starting salary of new engineers. Industrial and Labor Relations Review, 29(2), 236–248.

Reports and materials that use this theory (Korean)

There are no materials dedicated to this theory yet, but you can search related reports in the CampusDown library (Korean).

Find more reports · Search '거미집 이론' on CampusDown →

Rational Expectations HypothesisWhat the rational expectations hypothesis is, Muth's 1961 proposal, how it differs from adaptive expectations, Lucas and Sargent–Wallace on policy ineffectiveness, efficient markets, and critiques from learning and information rigidity.📈 Economics Hotelling's RuleWhat Hotelling's rule is: why the scarcity rent of an exhaustible resource should rise at the rate of interest, its arbitrage logic, Solow and Hartwick on intergenerational equity, extensions for exploration and technology, and the empirical debate.📈 Economics J-Curve EffectWhat the J-curve effect is: why a country's trade balance often worsens just after a currency depreciation and improves later, Magee's analysis of contracts and pass-through, the 1980s US deficit, hysteresis, and mixed empirical evidence.📈 Economics Lotka–Volterra EquationsWhat the Lotka–Volterra equations are: the classic differential equations for predator–prey dynamics, their origins, the cycles they predict, the competition equations, extensions by Holling and Rosenzweig, experimental tests, and uses beyond ecology.🔬 Natural Sciences Dual Labor Market TheoryDual labor market theory: Doeringer and Piore's primary and secondary sectors, links with internal labor markets, its critique of human capital theory, radical segmentation theory, Piore on migrant labor, and Korea's regular versus non-regular divide.📈 Economics

Latest ArticlesView all ›

New guides for college study and assignments (Korean)

This article was last updated on October 26, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.