Cobweb Model

slope of D

slope of S

initial D

initial S

starting price,

P

0

number of iterations

This Demonstration shows how time lags can lead to chaotic dynamics even with monotonic supply and demand curves in a simple competitive market model. Given an initial price level, sellers supply a certain quantity

q

of goods. However, depending on the quantity supplied, buyers will bid a suitable price

p

. In the next iteration, sellers will supply a new quantity of goods depending on the previous quantities and prices bid. Such cobweb dynamics can create price convergence, singularities, and limit cycles.

Permanent Citation

Samuel G. Chen

"Cobweb Model"
http://demonstrations.wolfram.com/CobwebModel/
Wolfram Demonstrations Project
Published: November 2, 2010