Variations on the Cobweb Model

Abstract:     
In introductory and even intermediate courses, the cobweb model is the reference dynamic model to justify market equilibrium and to illustrate how market equilibrium can be reached. Nonetheless, the cobweb model has at least two unattractive features: (i) that, in requiring at each time equality between quantity supplied and quantity demanded, the model partly presumes what tries to justify: market equilibrium; and (ii) that oscillation is the only price dynamics the model allows. This paper suggests three dynamic models that overcome these limitations; in particular, monotone converge to equilibrium is possible in these models. The first two assume linear supply and demand functions, whereas the last one considers adjustment rules based on excess demand instead of supply and demand functions.

Number of Pages in PDF File: 11

JEL Classification: A22, C61, C62, D40

Case and Teaching Paper Series