Cobweb Theorems with Production Lags and Price Forecasting
University of Melbourne - Department of Economics
Felisa J. Vazquez-Abad
University of Montreal - Dept. d'Informatique et Recherche Operationelle
Economics Discussion Paper No. 2012-17
The classical cobweb theorem is extended to include production lags and price forecasts. Price forecasting based on a longer period has a stabilizing effect on prices. Longer production lags do not necessarily lead to unstable prices; very long lags lead to cycles of constant amplitude. The classical cobweb requires elasticity of demand to be greater than that of supply; this is not necessarily the case in a more general setting, price forecasting has a stabilizing effect. Random shocks are also considered.
Number of Pages in PDF File: 29
Keywords: Cobweb theorem, production lags, stable markets, price fluctuations
JEL Classification: C02, C62, C65, D58, E32working papers series
Date posted: April 9, 2012
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