The Cobweb Model <Back to Last Page>     <Full Glossary>

Definition of The Cobweb Model: The cobweb model is a theoretical model of an adjustment process that on a price/quantity or supply/demand graph spirals toward equilibrium.

Example, from Ehrenberg and Smith: Suppose the equilibrium labor market wage for engineers is stable over a ten-year period, but at the beginning of that period the wage is above equilibrium for some reason. Operating on the assumption, let's say, that engineering wages will remain that high, too many students then go into engineering. The wage falls suddenly from oversupply when that population graduates. Too few students then choose engineering. Then there is a shortage following their graduation. Adjustment to equilibrium could be slow.

"Critical to cobweb models is the assumption that workers form myopic expectations about the future behavior of wages." "Also critical to cobweb models is that the demand curve be flatter than the supply curve; if it is not, the cobweb 'explodes' when demand shifts and an equilibrium wage is never reached." (Econterms)

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