The disequilibrium concept can be applied on the cob- Web model.
THE COBWEB THEORY
This model is used to trace the path from disequilibrium to position of equilibrium. In our previous discussion, we said that one cause of disequilibrium is lagged responses. The cobweb model assumes that producers output plans are fulfilled but with a time lag. That is, if a producer is a farmer, he cannot within the short-run increase his output just because the market is offering very good prices.
This is so because of the nature of the products. The time between planting and harvesting is long enough for risk and uncertainty to prevail. Thus, producers are assumed to base their production decisions on the previous period’s prices. However demand depends on the prevailing prices in the market.
Therefore, what is consumed presently is what must have been planted in the previous period.
The cobweb model always begins with a situation of disequilibrium in the market due to unplanned variation in the supply.
The following diagram can be used to illustrate what the cobweb theory is all about.
Just like we have convergent fluctuation we can also have divergent fluctuation.
Wilfykil answered the question on
March 6, 2019 at 07:19