Cobweb Cycle

Cobweb Cycle refers to a phenomenon where the prices of certain goods witness fluctuations that are cyclical in nature. It happens due to faulty producer expectations.

The producers of agricultural goods, for instance, might decide to increase their output one year because their product commanded a very high price the previous year. This, however, might lead to overproduction and cause prices to slump that year, thus leading to losses. Such cyclical price fluctuations are more severe in markets where speculators are banned from hoarding goods to sell them later at a higher price.