Cobweb model
Also called: Cobweb theorem · Topic: Markets, Equilibrium and Government Intervention · NCERT: Beyond NCERT
Meaning
The cobweb model explains why the prices and output of farm goods swing up and down in cycles. A farmer decides how much to plant this season based on last season's price, because crops take time to grow. So supply always reacts late and overshoots. A high price leads to heavy planting and a glut next year, and the price crashes. Farmers then plant less, there is a shortage, the price spikes, and the cycle repeats.
The swings shrink and die out only if supply is less price-responsive than demand. Otherwise they keep growing. Tools that calm the cycle include MSP, buffer stocks, price stabilisation funds, cold storage and food processing.
Example
Tomato prices are high one season, so many farmers plant tomatoes. The next season there is a glut, prices collapse and some farmers dump their harvest. Many then switch to other crops, and tomato prices shoot up again.
Don't confuse with
- Seasonal price changes: these repeat every year because of the harvest calendar. Cobweb swings come from farmers reacting late to past prices.