ECONOMIC UNDER DEVELOPMENT
W:e now pass from statics of comparative statics to dynamic analysis. In static analysis, for example, we discuss how equilibrium price is determined when the demand and supply curves are known and remain unchanged. Static analysis helps us to an analyse a situation where consumers, producing firms, industries etc., are in stable or static equilibrium at certain levels of prices, output, income and employment. In comparative statics, we analyse a situation, which has come about after a once-for-all change. In other words, we compare the two stable equilibrium one before and the other after the change. For example, suppose demand has permanently gone up. Now there will be new equilibrium price or an equilibrium different from the first.
But these methods of analysis have their limitations and cannot analyse many important and pressing problems, for example, the problems of economic fluctuations- booms slumps and tile problems of economic growth. In the study of economic growth. In- the study of economic growth, instead of looking at the rates of output per period of time, we look at the rates of change in the rate of output between periods of time. In static analysis, certain basic elements in the economy (e.g size and composition of the population, natural resources, consumers’ tastes, production techniques, etc.) are taken as given and fixed. These basic factors date time the levels of income, output and employment. In analysis of economic growth, some or all these basic elements are supposed to change and we have to determine the rates at which output is changing. We’ study the conditions of steady growth rate or determinants of economic growth. Let us first study how the theory of economic growth has emerged and has come to occupy the attention of economists today.