Bacon Production and the Pig-Cycle in Great Britain

Abstract

THE existence of a pig-cycle, in the sense of a self-perpetuating cycle of pig prices, has generally been assumed by writers on the economics of pig production, and as a result has excited some attention among theoretical economists as an example of the influence of the lack of foresight in causing disequilibrium.1 In economic theory, this argument is generally known as the cobweb theorem. If producers assume that present prices and costs will continue unchanged, and if there is a change in demand or supply conditions, then providing that the elasticities of demand and supply are of a certain order of magnitude, it can be shown that continuous fluctuations in prices and output will occur and that there will be no tendency for an equilibrium to be established. The condition which is necessary if this is to be true is that the demand curve should be less elastic than the supply curve over the relevant range.2