mck@ratex.UUCP (Daniel Kian Mc Kiernan) (02/28/85)
I have been informed that someone in this newsgroup tried to use a
cobweb model to explain some of the economic problems of American farmers.
Not having read the article, I cannot respond to its specifics, but there
are some things that need to be said.
A cobweb model depicts a hypothetical pattern of economic behavior.
A cobweb model starts with the supply-and-demand relationship for a good or
service out of equilibrium; in a cobweb model, the following cycle is
repeated:
a. Producers, anticipating a price which is actually higher than the
equilibrium price, produce more than the equilibrium amount.
b. Consumers are not willing to buy all that is produced at the
price which the producers anticipated, or even at the price of
supply-and-demand equilibrium; price is driven below the
equilibrium price.
c. Producers, anticipating a continuance of a price which is
actually lower than the equilibrium price, produce less than the
equilibrium amount.
d. Consumers, faced with less than the equilibrium amount, bid up
the price past the equilibrium level.
e. Go back to a.
It should be noted that the cycle can begin at c. Cobweb models are called
'cobweb models', because the normal case of the model is that things
gradually spiral-in towards the equilibrium-point, with the process
hastened if the producers realize what is happening, and a graph of the
process looks (sort-of) like a spider web.
Given a free market, for a cobweb phenomenon to persist, instead of
spiralling-in to equilibrium, two unlikely conditions have to be met:
1. The slope of the supply curve must be the additive inverse of the
slope of the demand curve (eg: If the slope of the demand curve
is -$1/bushel, then the slope of the supply curve is +$1/bushel).
2. Producers must be too stupid to realize what's going on, and
either too stupid to understand when the situations is explained
to them, or somehow prohibitted from getting such an explanation.
Condition 1 is, again, unlikely; and condition 2 is a ridiculous insult to
the intelligence of the farmer.
Those seeking an explanation for the plight of the farmer in a free
market cobweb will simply have to look elsewhere.
Bye,
Daniel Kian Mc Kiernan