Limitations of COElOmic Statics

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Limitations of COMelodic statics

The static analysis suffers from a few serious shortcomings: It takes us far away Irom the  It assumes variable data such as population, resources and techniques,  to remain  But the actual world is a dynamic one where  data arc continuously changing. Apt lv Prut , Edgeworth remarks.The treating of a constant variables 01/ different points of time and we introduce certain equations which embrace at the same time several of those magnitudes at different instants “. Economic dynamics thus. according to  him. should embody [functional relationships of variables with different dates appended to them. For instance. if we are investigating as to how many umbrellas shall be supplied by the various sellers in the market today, we should take into account the market conditions obtained yesterday. The ramifications of the past decisions shall influence the sellers’ decisions today with regard 10 the units of umbrellas they should supply. Proceeding in Ihis way. we may say that Frischen definition of economic dynamics lakes care of Ihe past values of  the several variables. their lugs, sequences. rates of change and cumulative magnitudes. etc.Bawls Concept. Taking a cue from the Frisian approach. Baumol has further sharpened the concept of economic dynamics. lie slates that economic dynamics is lIre .study of economic ph cnnmena ill relation to tire preceding and succeeding events. Thus, to Baumol the essence of economic dynamics is predictability as against Frisch who confined it to the process of change only.

What is needed is that the human mind should consider the past and the future while deciding upon the course of action 10 be taken. The producer should consider the past, the present state of the market and the expectations regarding the future.  The necessity for, and significance of. dynamic treatment in Baumol’s sense introduces the idea of  time-lags of all types. 11 makes incumbent. therefore. to visualize how the change in the value of a variable at one point of lillie affects the values of the other variables at different points of time. Hence. the dynamic analysis in the Baumolian sense has 10 consider the inter-temporal relationship between  variables and examine the course of these variables over a particular period of time.Samuelson’s Synthesis. Samuelson has however, endeavoured to clinch this controversy by offering a sort of compromise between the definitions given by Hicks Harrod. Frisch and Baumel. He states that “It is tire essence IIf dynamics that economic variables at different points of time are functionally  related including velocities, acceleration, or higher . Thus, this definition includes in its field, the phenomena of cyclical growth, cyclical fluctuations. speculation, cob-web theorems of price determinations, stagnation thesis, perspective planning, etc.

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Limitations of COElOmic Statics