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Economics Dynamics Problems 28

Economics Dynamics Problems 28 - 12 Economic Dynamics form...

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12 Economic Dynamics form q d = a p . On the face of it this is dimensionally inconsistent. a [ QT 1 ] and p [ MQ 1 ] and so cannot be subtracted! The point is that the coefficient of p is unity with dimension [ Q 2 T 1 M 1 ], and this dimension gets ‘hidden’. Example 1.4 A typically dynamic version of example 1.3 is the cobweb model q d t = a bp t a , b > 0 q s t = c + dp t 1 d > 0 q d t = q s t = q t (1.5) Here we do subscript the variables since now two time periods are involved. Al- though q d t and q s t are quantities per period to time with dimension [ QT 1 ], they both refer to period t . However, p [ MQ 1 ] is for period t in demand but period t 1 for supply. A model that is specified over more than one time period is a dynamic model. We have laboured dimensionality because it is still a much-neglected topic in economics. Yet much confusion can be avoided with a proper understanding of this topic. Furthermore, it lies at the foundations of economic dynamics.
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