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.