2.1.3 The Cobweb Theorem The cobweb theorem by Kaldor (1934) is a theoretical explanation of the cyclical component of certain price-quantity paths through time. The theorem views prices and quantities as being linked recursively in a causal chain that is a high price leads to increased production meaning large supply which result in low prices which in turn result in smaller production as shown in Figure 1. Current prices area function of current supply and which in turn is a function of past prices. A general model showing the predictions of the Cobweb theory is shown in Figure 1.
