Limitations of Economic Dynamics

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Limitations of Economic Dynamics

Economic dynamics, though it is a more realistic method for analyzing the complicated problems. yet it suffers from some weaknesses.

The method of dynamics is essentially very complex and only a few economists equipped with the techniques of advanced mathematics can make use of it. This in fact has reduced its popularity.

It has been held by Northrop that it is not possible to build up the theory of economic dynamics. His contention is that the theory of economic dynamics requires certain fundamental conditions. which the economic data do not possess.

(;omparinJ,l to equllibrlum position due (0 change in demand keeping supply constant

comparison,l to equilibrium position due 
change in demand keeping supply constant

Thus, in comparative statics. we study the change Prom one equilibrium position to another as a result of changes in parameters. It helps us to know the direction and the magnitude of changes in the variable when certain data change, so as to cause a movement to a new equilibrium position. In comparative statics, there is a once-for-all change in demand conditions and supply is allowed to adjust to these changes. Illustrate this point: The original equilibrium bet ween the demand curve DD aim the supply curve . But when demand increases to D’D’ as a result or increase in income. the new equilibrium  at the price comparative static analysis. we  art: only concerned with explaining the new equilibrium position at E~ and comparing with  and we arc  not concerned with explaining the whole path the system has traveled from  Alfred Marshall. made extensive use or comparative statics in his rime-s-period urinalysis pricing under perfect competition. Although the dynamic analysis is more comprehensive and informative of the two equilibrium positions and the different sets of data.

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Limitations of Economic Dynamics