Question

Distinguish between static and dynamic analysis.

Answer 1

Sr. No.	Basis of comparison	Static analysis	Dynamic analysis
1.	Time element:	Static analysis ignores the element of time. All economic variables are considered at a single point in time; thus, it is often termed a “timeless economy”.	Dynamic analysis explicitly incorporates the time element, studying how economic variables change over time.
2.	Process of change:	Static analysis does not show how change occurs; it only looks at the conditions of equilibrium at a point in time. It’s like a “still picture”.	Dynamic analysis shows the path of change and how economic variables evolve through time, like a “movie”.
3.	Equilibrium:	Static analysis studies a single equilibrium state.	Dynamic analysis studies both equilibrium and disequilibrium, focusing also on how equilibrium is achieved.
4.	Study of reality:	Static analysis makes assumptions such as constant population, fixed technology, perfect knowledge, and no change in preferences. It is thus often seen as far removed from reality.	Dynamic analysis assumes key variables such as population, technology, and preferences change over time, making it more realistic.