Merits and Demerits Dynamic Analysis In Economics
Economic Dynamics is concerned with the changes in the expected values of the variables. For example change in price affects the quantity demanded and supplied of a commodity. The extent of the impact of price on the demand and supply of a commodity depends upon the extent of change in the other variables. Merits and Demerits Dynamic Analysis are discussed below.
Merits Of Dynamic Analysis:
Economic dynamics has the following merits
- Realistic: Economic Dynamics involve no friction. It helps us to understand how the economy develops at a particular time when compared to the preceding period. $o it is. considered as a realistic approach.
- Changes in Equilibrium: Economic Dynamics studies the problems of changes in equilibrium. It analyses the behavior of an economic system which was in disequilibrium. It denotes the forces that bring a new equilibrium position.
- Business cycles: Economic Dynamics is used for studying the causes and consequences of business cycles. It acts as a basis for explaining the behavior of business cycles.
- Econometric Models: Economic Dynamics is considered a basis for explaining various econometric models relating to national income, business cycles, economic growth etc.
- Economic growth: Economic Dynamics is the best means available for studying and analyzing the problems of economic growth. Its study is useful for understanding the problems relating to time lags, rate of growth and sequence analysis.
Demerits Of Dynamic Analysis:
Economic Dynamics consists of the following limitations:
- Delicate method: Economic Dynamics involves careful observation and usage. Economists who followed this method expressed divergent opinions for interpreting the economic variables. Hence, it is considered as a delicate method.
- Unfavorable conditions: Economic Dynamics can be adopted only under certain conditions. For instance it is not possible to assume that all consumers behave rationally. So, dynamic analysis can’t be adopted during the unfavorable conditions.
- Made Economics a complex one: The trend towards building economic models has made Economics a complex and difficult subject. This led to the creation of doubts regarding the practical significance of economic dynamics. It may he remembered that economic statics and economic dynamics are complimentary in nature. Problems relating to economic variables are solved and accurate conclusions are drawn with the help of the two approaches.