The Cobweb model is an economics model that describes how a market might reach equilibrium when there are periodic price changes. The model was developed by economists Alfred Marshall and Vera Smith.
In the Cobweb model, there are two types of prices: the current price and the expected future price. The expected future price is what producers expect the price to be in the future, while the current price is the actual current market price.
When the expected future price is higher than the current price, producers will increase production in order to take advantage of the higher prices. However, as production increases, the actual market price will also begin to rise. As the market price rises, producers will start to expect that prices will fall in the future, and they will begin to reduce production. This reduction in production will eventually lead to a fall in the market price, which will then start the cycle over again.
The Cobweb model can help us understand how a market might reach equilibrium when there are periodic price changes. The model can also help us understand why prices might fluctuate around the equilibrium point.