Micro dynamics

 

Study of micro-static shows the state of equilibrium through demand supply analysis under the assumption of constant time where no changes in variables take place. Same way study of comparative micro static shows the comparison between two equilibriums due to partial change in factors and time period. But the world and time are neither static nor they partially change. The real world is dynamic. The change in time and other factors are dynamic and they lead to change in demand and supply hence change in equilibrium. Thus micro dynamics refer to a position by which the system passes from one position of equilibrium to other. It is very essential to know change and process of change in equilibrium. In this analysis with the change in pace of time price of commodity also changes and that brings the change in demand and supply. Those changes bring the true picture of real world economy at different prices at different time. According to J. A. Schumpeter, “we call a relation dynamic if it connects economies quantities that differ to different points of time.” W. T. Baumol said, “Economic dynamics to the study of economic phenomena in relation to preceding and succeeding events.” The other most important aspect of micro dynamic is that it deals with disequilibria condition also. The analysis chases process of change time by time. It can explain state of being disequilibria and how the disequilibria’s move towards equilibrium.

 

In the above figure, quantity demand and supply is puts on X-axis and Y-axis represents price. DD is initial demand curve SS shows supply. Demand curve DD and supply curve SS intersects each other at point E. This is actual equilibrium. At the initial equilibrium point E, quantity demand/supply and price are OQ and OP respectively. Suppose, demand curve shifts from DD to D’D’ due to changes in micro variables which raise price level from OP to OP,. Firms expect this price level prevails at t, and t2 time period of OQ and OQ, quantity demand and quantity supply respectively. But the demand curve D’D’ shows that OQ, quantity can be sold only at OP2 price at t3 and t4 time period. Therefore OP2 becomes the equilibrium price for that time period. In the t4 and t5 time, firm will sale OQ2 quantity at OP2 price. But OQ2 quantity can be sold at higher price ‘OP3 at t5 time period .This induces them to produce more quantity of goods (i.e; OQ3) in the tf, time period. OQ3 quantity can be sold at the lower price ‘OP,)’.

Therefore, in the nth time period, the producers prefer to produce lower quantity ‘OQ4‘. Here quantity supplied is just equal to quantity demanded, where new demand curve (D’D’) and original supply curve (SS) intersect at E’ point where the equilibrium quantity OQ4 and price OP4 are determined.

4 thoughts on “Micro dynamics”

  1. I am only commenting to let you know of the wonderful experience my girl had browsing yuor web blog. She noticed a good number of details, not to mention how it is like to possess an awesome helping heart to let many others with ease learn several tricky things. You undoubtedly did more than my expected results. Many thanks for rendering such important, trustworthy, educational as well as cool tips on that topic to Ethel.

  2. I want to express appreciation to the writer just for bailing me out of this matter. As a result of looking through the the net and meeting principles which were not beneficial, I thought my life was gone. Living devoid of the answers to the issues you have solved through the article is a crucial case, as well as the kind which might have badly damaged my career if I had not encountered your blog post. Your good talents and kindness in touching a lot of things was priceless. I am not sure what I would have done if I had not come across such a stuff like this. I can also at this point relish my future. Thanks so much for the high quality and results-oriented help. I won’t hesitate to refer the sites to any individual who wants and needs tips about this topic.

  3. I actually wanted to write a quick word to appreciate you for all of the amazing guidelines you are placing at this site. My time-consuming internet search has finally been honored with extremely good know-how to exchange with my visitors. I would repeat that many of us site visitors actually are truly blessed to dwell in a great community with many brilliant professionals with helpful techniques. I feel really lucky to have seen your entire webpage and look forward to really more entertaining times reading here. Thanks a lot once again for everything.

Leave a Reply

Your email address will not be published. Required fields are marked *