The Cobweb Theorem and Its Significance for the Croatian Corn Market

The Cobweb theorem was first introduced into economic literature by Nicolas Kaldor in 1934. It aims to explain the causes of price volatility in agricultural markets and uses cyclical movements to predict future trends in price levels and output over short or long periods of time. The theorem assumes that producers, i.e. farmers make their production decisions solely on the basis of the average price of the previous period, which shapes the supply curve. It is assumed that demand is relatively constant and inelastic compared to supply. This paper analyses the applicability of the Cobweb theorem to the corn market in the Republic of Croatia. Corn was chosen for the analysis because it is the leading agricultural crop in terms of production volume, acreage and export value. The results show that while the theorem offers a simplified theoretical framework, real-world production decisions are influenced by many factors beyond price, which the model does not account for.