PROBLEMS AND PROSPECTS OF ECONOMY OF ASSAM

PROBLEMS AND PROSPECTS OF ECONOMY OF ASSAM

Main Problems of Economic Development in Assam and Factors responsible for these problems: There are various problems attached with the initiatives to develop the economy of Assam. Although every state has its own share of special problems, Assam may be described as a major 'problem state' with its geographical isolation, proneness to natural calamities, sensitive borders, disturbed law and order conditions and other factors as well. The factors impeding economic growth in Assam can be classified into Economic' and 'Non-Economic' factors.

·         Economic Factors: Following are the main economic factors which are responsible for creating problems of economic development in Assam:

o  Rapid Growth of Population : There's rapid growth of population witnessed in Assam. This is a very disturbing factor as the increasing number of population is a liability rather than an asset. The census data shows that Assam has one of the highest demographic growth rate in the country; the growth rate in the decade 1961-71 being 34.95 % against 24.80 % for all India. During the last two decade 1971-91, the growth rate of population In Assam was 53.26 %. A significant portion of the increase is due to the influx of people from outside. The rate of growth of occupation and wealth in Assam cannot keep pace with this high rate of population growth creating problems of unemployment, poverty and inequality of income in the region.

o  Natural Calamities : Assam is unfortunately one of those few states which is every now and then visited by natural calamities such as floods and droughts. The actual experience and a study of the problems connected with the Brahmaputra and its tributaries suggest that it will be a long time before the problems of flood are adequately tackled. The total damage to crops, cattle, houses, public institutions in Assam has been increasing year by year, that is, from Rs 13.2 crores in 1970 to Rs. 24.6 crores in 1972 and from Rs. 11.98 crores in 1976 to Rs. 39.80 crores in 1980 and then to Rs. 306.6 crores in 1989, Thus, production and income of the State are facing setback every year due to major erosion by the Brahmaputra and its tributaries and the growing occurrence of floods. Every year the revenue so generated, are being diverted for flood relief. The total diversion of revenue for flood relief has been increasing from Rs. 104.74 lakh in 1962-63 to Rs. 286.32 lakh in 1974-75 which accounted to 2.6 % and 1.8 % respectively of the state total revenue Thus a good volume of state's resources has been diverted for making repairs and for giving relief to the flood victims. As a result of such a burden on state's resources, plans for development have received a setback Thus, natural calamities in Assam make speedy implementation of plans difficult

o  Geographical Isolation of the State and Its Difficult Terrain: Geographical Isolation is a characteristic feature of the state which always goes against its development strategy. From the very early period, Assam was a neglected state partly due to its geographical isolation which restricted capital flow into the state's economy for industrialisation of the state. Geographical isolation of the state involves higher unit costs. Further, lack of contact, lack of attention and lack of supervision by the Centre are the results of geographical isolation of the state. The difficult terrain of Assam surrounded by hills, rivers and dense forest leads to an increase in the cost of administration for developmental projects, besides making mobilisation of resources particularly difficult.

o  High Cost Structure : The cost structure in Assam is very high. This is due to the existence of higher price level in the state in comparison to other states. It can be explained further by K.K. Bhatia's standard basket method, showing preliminary estimated indices of comparative costline of selected centres of different States of India with Delhi as the base. The results show that the index for Digboi (Assam) is higher by 18% over Delhi. This index for Digboi is again the second highest in the country followed by Bombay. If Digboi Is taken to represent Assam and the average of the 16 centres to represent India, then according to this Index (standard Basket Method) it is 21 % higher.

Taking all these into consideration, broadly speaking, it Is felt that the consumer price level in Assam may be taken to be about 20 % higher than all India average. The cost structure in Assam is thus very high and this has raised the cost of all the projects under different plans. This had added an additional strain on the financing of development projects in Assam. Besides, due to this high cost of living, chances of raising tax rates and the volume of savings for financing developmental plans have become narrow and the cost of administration also increases due to the high cost structure. Thus, this high cost structure is always going against the development of the economy of Assam.

o  Poor Transport and Communication Facilities: Assam is lacking a sound transport and communication system Geographical isolation, difficult terrain and lack of attention are some of the basic factors which are responsible for poor development of transport and communication facilities. Both the railway and road transport facilities in Assam are very minimum compared to its need. Assam accounted for 3.9 % of the total railway route length of the country as per March, 1993 but in case of broad gauge lines it accounted for 0.35 % of the total broad gauge routes of the country. The expansion works, like preparation of new railway lines, conversion of metre gauge lines into broad gauge lines, extension of national highways, construction of new bridges over the Brahmaputra, development of well connected transport factfifies and sound communication system etc. are not up to the mark, in the absence of such facilities, a region cannot develop industrially. In recent years, steps have been taken to improve the transport and communication system of the state without which the development of the economy is impossible.

o  Capital Deficiency: Capital deficiency is a characteristic feature of underdeveloped countries This characteristic is nothing peculiar to Assam when the whole country is suffering from capital deficiency. But this is a serious handicap with which toe state’s economy is involved The problem of finance assumes serious proportions, both because agriculture and small business dominate the economy and also because neither the Government nor the corporate sector saves enough to meet the cost of its own investment projects. The volume and rate of savings in Assam are very poor. The savings depend on the level of per capita income. As the level of per capita income in Assam is very poor, the saving potential is low. Unfortunately, the marginal propensity to consume, of the people of Assam is very high on account of sub-standard living conditions of the majority of the population Thus, inspite of having huge development potential, the State's economy cannot develop due to lack of capital formation. Further, a sizeable section of the population, who are earning their livelihood in Assam is of a migratory character. A substantial portion of the savings of such seasonal migrants is not available for being ploughed into Assam's economy as it is remitted outside. Similarly, the corporate sector and trade are substantially in the hands of persons exercising control from outside and they are remitting profits outside Assam A recent study has been made by an Expert team sponsored by I.D.B.I. on the basis of available statistics of rail and road borne trade. The study indicates that while the commodity flows into and out of Assam are more or less balanced at the level of about Rs. 200 crores annually, there is a regular outflow of monetary income from Assam to the extent of Rs. 63 crores annually. This heavy amount of outflows of capital is creating a heavy pressure on the financial condition of the state, besides making the pace of development slower.

o  Wastage of Natural Resources: Inspite of having a huge amount of natural resources, the State's economy still remains largely under-developed. As a result of this, instead of preservation, there's depletion of huge quantity of natural resources. The investment in Assam is mainly channelised towards the exploitation of the rich resources like tea, jute and oil. It is a reflection of the continuation of the old colonial pattern of investment Barring the setting up of a fertiliser factory and three refineries, no significant utilisation of the resources has come about. Assam has 28 % of the total hydro power potential of the country, which remains under-utilised. The vast coal resources have not been exploited, (except for traditional use of the Railway etc.) despite several possibilities for use as fuel for production of power, for production of coke and as base for several chemical industries. The forest resources in Assam are also under-utilised, particularly in the matter of non-standard species. Thus insufficient exploitation of natural resources in Assam is responsible for this poor economic development of the state.

o    Lack of Skilled Personnel: Assam is also suffering from an acute shortage of skilled labour. Most of the labourers are unskilled. For higher skills, Assam has to depend upon other states and foreign countries. Consequently it has to pay higher wage rates for skilled labour than in many other States. Besides, Assam also has to import technicians from outside the state on attractive rates of remuneration for installation of capital-goods industries and thus it raises the cost of the development projects besides making the gestation period of these projects lengthy.

o    Lack of Entrepreneurial and Managerial Talents: About the availability of entrepreneurial and managerial talents, the picture is very gloomy There is lack of initiatives and entrepreneurship on the part of local talents, to start new industries within the state for which there is sufficient development potential.

o    Poor Credit Facilities : The credit facility, which is a part of infrastructure requirement for development, is very minimum. The per capita bank credits in Assam which stood at Rs 15.6 in 1970 as against Rs. 83.9 for all India. The credit deposit ratio in Assam stood at 23.5 in 1970 as against 55.9 for all India. In recent years also, credit deposit ratios of the commercial banks In Assam stood at a poor level which were 44.3,49.5, 45 5 and 43.4 in 1975, 1976 1977 and 1978 (June) respectively. Again in December 1994 the deposit ratio in Assam was 55.9 % as against 59.4 % for all India Thus the lending policy of the commercial banks is far from generous to this poor State of Assam. In the absence of large scale credit facilities, industries in the private sector in Assam cannot grow satisfactorily.

o    Primitive Technology : Technological progress is the root of economic development. But Assam is suffering from lack of technological development due to poor scientific educational facilities Assam is still following the primitive technologies in agricultural sector and thus agricultural production remains stagnant whereas other states like Punjab, Haryana, Gujrat, Uttar Pradesh have been able to make sufficient progress in agriculture by applying modern technologies. Small scale and cottage industries in Assam are still following or adopting old orthodox technologies and cannot stand in the competitive market The economy of the State has remained extremely backward due to the absence of advanced technology.

Thus, most of the favourable factors which are responsible for sound economic growth are missing in Assam. Rather, various unfavourable factors are standing as an obstacle on the path of economic development of the state.

·                                

·         Non-Economic Factors : These inciude-

o    Sensitive Borders : Assam is bounded by sensitive borders on all sides. The borders specially with Bangladesh (formerly East Pakistan) on the west and south and with China on the north have remained too sensitive since Independence. This adverse factor always goes against the economic interest of the State by obstructing the easy flow of industrial investment both in the public and private sectors. Inspite of possessing huge natural resources, the investment in Assam has remained
a risky one due to its sensitive borders. Although at a slow pace, but with the change of time public sector investments started to flow within the state's economy. But the flow of private investment in the sector still remains poor.

o    Disturbed Law and Order Situation: The maintenance of law and order is a critical subject as Assam is a sensitive border State  Assam has to spend a heavy amount on police administration for the maintenance of law and order The per capita expenditure on police administration on Assam stood at Rs. 8.25 in 1972 which was the second highest figure among all the states. In recent years, the expenditure has increased considerably due to the problem of insurgency in the State. This unduly heavy expenditure on law and order maintenance has put a severe strain on the already slender finances of the State Government and has, to that extent, hampered the Government's ability to finance the developmental schemes. Further, this disturbed law and order condition will also restrict the flow of private capital into the State's economy.

o    Lack of Efficient Administrative Machinery : Maintenance of an efficient and clean administration is very essential for achieving sound level of development. But administrative machinery in Assam is neither efficient nor clean. The leakage of funds in various developmental works is quite common, resulting in poor performance of various plan and non-plan projects and wastage of financial resources of the state. The prevalence of red-tapism has always delayed the operation of various developmental plan projects and makes the utilisation of plan funds difficult which leads even to the surrender of scarce plan funds to the Central Government

o    Social Structure: Social structure in Assam is not favourable for economic growth The joint-family system creates under­employment and makes savings difficult. The caste system restricts the mobility of labour. The laws of inheritance have results in minute sub-division and fragmentation of holdings Religion has advocated austerity and renunciation which has always obstructed the people from the way of their material advance Further, united action by the people of the State on the economic front has been prevented by the diversity of castes and creeds.

Thus, we have seen the various hurdles which the State has to face on the way of attaining economic development. Both the economic and non-economic factors are equally responsible for this poor rate of development attained by the State.

Prospects of Assam Economy:   Assam is the largest economy of the Northeast region. It is India's gateway to the Northeast as well as to the neighbouring countries of Myanmar, China Bangladesh, Nepal and Bhutan, providing a vital link for trade with the Southeast Asian countries It is the most industrially advanced state in the Northeast India, because of its comparative proximity to the rest of the country and availability of infrastructure. Its prospects for economic development are as follows:

·         Endowed with Natural Resources: Assam is rich in natural resources such as natural oil and gas, rubber, tea, and minerals such as granite, limestone and kaolin. Assam tea is a well recognised product all over the world.

·         Sectors with Investment Potential: The state is rich in water resources. Other potential areas of investment include power and energy, mineral-based industries, tourism and crude oil refining.

·         Favoured tourist destination: With its pleasant climate and scenic landscape, Assam is a popular tourist destination. The state offers visitors a variety of choices from world heritage (leisure) sites to temples and monuments.

·         Availability of skilled workforce: Assam has numerous educational Institutions. A substantial portion of the city population, in the age group of 15 to 25 years, is computer literate

IGNOU Solved Economics Question Papers

EEC-11

Book 1

Q:        Define economics. Explain the usefulness of study of economics.            (Dec.’01)         20

Ans:     According to earlier definitions economics was linked with Wealth. Earlier economists like Adam Smith, J.E. Cairnes, J.B. Say assigned wealth a key position in the study of economics. Later on A. Marshall defined it as the science of material welfare. According to him, economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well being. However, according to Robbins definition, it is the science which studies human behaviour as relationship between ends and scarce means which have alternative uses. Robbins claimed that his definition was analytical rather than classificatory. Instead of discussing a certain type of human behaviour, it focused its attention on human behaviour concerned with the utilization of scarce resources to achieve unlimited ends. His definition lays three fundamental propositions- “ends”, “scarce” means and “their alternative uses” which constitute the basis of the structure of economic science. According to modern definition i.e., in Keynesian terms, Economics is defined as the study of the administration of scarce resources and of the determinants of income and employment, In other words, it studies the cause of economic fluctuations to see how economic stability could be promoted.

Economics has become one of the important branches of social sciences. It is of great practical value in our daily life. Economists study the subject not only to know the truth for its own sake, but to find out a way for many economic and social problems of the society. In economics, we study about things like prices, rent, wages, interest, profits and taxation. All these affect every person one way or the other. The study of Economics is divided by the modern economist into two parts – Micro economics and macro economics:

Micro-economics occupies a very important place in the study of economic theory. It has both theoretical and practical importance. From the theoretical point of view, it explains the functioning of a free enterprise economy. It tells us how millions of consumers and producers in an economy take decisions about the allocation of productive resources among millions of goods and services. It explains how through market mechanism goods and services produced in the community are distributed. It also explains the determination of the relative prices of the various products and productive ser­vices. It explains the conditions of efficiency both in consumption and production and departure from the optimum. As for practical importance, micro­economics helps in the formulation of economic policies calculated to promote efficiency in produc­tion and the welfare of the masses. Thus, the role of micro-economics is both positive and normative. It not only tells us how the economy operates but also how it should be operated to promote general welfare. Micro-economic analysis is also applicable to the various branches of economics such as public finance, international trade.

The macro approach of economics is useful in several ways: It is helpful in understanding the functioning of a complicated economic system. It gives a bird’s eyeview of a complicated economic system. For the formulation of useful economic poli­cies for the nation, macro-analysis is of the utmost significance. Economic policies cannot be obviously based on the basis of the fortunes of a single firm or even a single industry or the price of an individual commodity. It is far more fruitful to regulate aggregate employment and national income and to work out a national wage policy. Macro-analysis also occupies an important place in economic theory in its pursuit of the solution of urgent economic problems. These prob­lems relate to aggregate output, employment and national income. Economic theory seeks to explain fluctuations in the level of national income, output and employment. Thus, we are able to study the economy in its dynamic aspect. (635 Words)               

Q:        “Economics is a science of choice making”. Explain this with the help of production possibility curve.            (Dec.’06), (June’07)                                                                           20

Ans:     Like the individuals, a society as whole has limited resources. It has to decide what to produce with the limited resource. It has to make choice about the quantity of different commodities. Choice emanates from scarcity. Thus our choice is always constrained or limited by scarcity of our resources. Suppose we have enough resources we can produce all that we want.

All such choices can be made with help of production possibility curve. The production-possibility curve separates outcomes that are possible for the society to produce from those which cannot be produced subject to the available resources.

Let us consider an economy with only so many people, so many industries, so much of electricity and natural resources in deciding what shall be produced and how these resources are to be allocated among thousands of different possible commodities. How many industries are to produce steel? How much electricity to be provided for agriculture; how much for industries?. Whether to provide free electricity to farmer or not? Theses problems are complicated. Therefore, to simplify let us assume there are only two goods to be produced - apples and oranges.

Production Possibility Schedule

In the schedule A and E are possibilities where the economy either produces 100 percent of apples or 100 percent of oranges alone. But the production possibility curve assumes the production of two goods in different combinations. Possibilities A, B, C ,D and E are such that the economy produces 4 units of apples and 0 units of oranges in possibility A, 3 units of apples and 2 units of orange in possibility B, 2

units of apples and 4 units of oranges in possibility C, 1 unit of apple and 6 units of oranges in possibility D, 0 unit of apples and 8 units of oranges in possibility E.

Thus we see that if we are willing to have more of oranges, we should be willing to sacrifice more of apples. For instance, to reach possibility C from B, the economy produces 2 units more of oranges by sacrificing 1 unit of apples. A full employment economy must always in producing one good be giving up something of another. This assumes of course, that at least some resources can be transferred from one good to another. Such choice of one particular alternative involves opportunity cost of foregoing the other. Hence, the decisions of the society will be based on the comparison of costs and benefits of each alternative. In doing so, both the monetary and social cost and benefit should be the basis of

any choice. Thus the one that gives the maximum benefit at minimum cost to the whole society should be the best choice.

Production possibility schedule is shown graphically in the fig. Units of oranges are measured horizontally and that of apples on the vertical axis. The curve A and E depict the various possible combinations of the two goods - A, B, C, D, and E. Thus a list of all the possible combinations of apples and oranges makes up production possibilities. The production possibility curve is also known as transformation curve or production possibility frontier. This curve shows the rate of transformation of one product into the other when the economy moves from one possibility point to the other.

All possible combinations lying on the production possibility curve show the combinations of the two goods that can be produced by the existing resources. Any combination lying inside the production curve such as U in the figure indicates that resources are not being fully employed in the best-known way. Any point outside the production possibility frontier, such as L implies that the economy does not have adequate resources to produce this combination. But a shift outside the production possibility frontier certainly indicates economic development. This is possible by technological advancement and increase in supply of factors of production. (641 Words)

Production Possibility Curve                                   (Dec.’07)                                                         3

A production possibilities curve (PPC) shows the various combinations of two goods (X, X₂) which the firm can produce using technically most efficient methods of production and allocating resources in an economically efficient manner, with its resources being always fully utilised. It shows, given scarcity of resources and given technology, the maximum output produced of one good, given the output of the other good. It shows how one good can be transformed into another good not physically but via the transfer or shifting of resources from one line of use to another. It shows how food is transformed into clothing or from clothing to food by diverting resources from one use to another. Hence PPC is also called the transformation curve. (121 Words)

Positive versus Normative Economics                     (June’07)                                                        5

Positive economics can be defined as a body of systematized knowledge concerning what is, while normative economics tries to develop criteria for what ought to be. Positive economics is mainly concerned with the description of economic events and it tries to formulate theories to explain them. But in normative economics, we give more importance to ethical judgments. Normative economics is concerned with the ideal rather than the actual situations. Statements on economics may be classified into positive statements and normative statements. If there is disagreement over a statement, we can find out whether it is true or false by verifying facts. But when there is disagreement over a normative statement, we cannot settle the issue simply by appealing to facts. The questions, “what policies Government should follow to reduce unemployment? What should it do to reduce inflation? are all questions in positive economics. On the other hand, question like, “should the government be more concerned about unemployment than inflation?”, then it is a normative one. Economists like Lionel Robbins believe that we must leave normative questions, such as what ought to be done to political and moral philosophy and that we must study and analyse only positive questions. (198 Words)

Explain Scarcity is the root cause of all economic problems                     (Dec.’00)                     5

According to Robbins, an economic problem will arise only when there is scarcity, but it may arise during times of abundance as well. For example, the great depression of 1930s was caused not so much by scarcity but by plenty. That is why the world depression was described as poverty in the midst of plenty. In spite of the above criticisms, we have to note that most of the economists have accepted the definition of Robbins because it emphasizes scarcity and choice which are two important facts of life under all economic, political and legal systems. It is true that there have been improvements in the methods of production because of technological advancements. But scarcities are always with us. That is why we say economics is the science of scarcity and it is the root cause of all economic problems. (140 Words)

Stock Variable and Flow Variable                          (June’07)                                                        5

Anything, which varies, is a variable, (For e.g. price, quantity demanded and supplied, income, investment, exports, imports, employment, cost of production, profits etc.). However, time period is important to observe the variation. I may be a week, a month, or a year or a longer period of time. Now in-each of these periods the relevant variable may be a stock variable or a flow variable. Both stocks and flows are expressed at a precise moment in time. A flow variable has both a time dimension and a time reference, while a stock variable has only a time reference. Though both are measured at fixed points in time, flow variables are measured in "temporally determined units". In other words, flows are always expressed per unit of time. While stocks are always expressed at a point in time. For instance, capital is a stock variable, since it has no time dimension but has only time reference, like stock of capital on 1st January 2000. Investment, however, is a flow variable since it is expressed per unit of time, like 10 per cent per annum. (182 Words)

Partial equilibrium                                                    (Dec.’99)                                                         2

A partial equilibrium is a type of economic equilibrium, where the clearance on the market of some specific goods is obtained independently from prices and quantities demanded and supplied in other markets. In other words, the prices of all substitutes and complements, as well as income levels of consumers are constant. Here the dynamic process is that prices adjust until supply equals demand. It is a powerfully simple technique that allows one to study equilibrium, efficiency and comparative statics. (79 Words)

Partial versus General Equilibrium                                    (June’07) (Dec.’02)                                        5

A partial equilibrium is a type of economic equilibrium, where the clearance on the market of some specific goods is obtained independently from prices and quantities demanded and supplied in other markets. In other words, the prices of all substitutes and complements, as well as income levels of consumers are constant. Here the dynamic process is that prices adjust until supply equals demand. It is a powerfully simple technique that allows one to study equilibrium, efficiency and comparative statics.

General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many markets. It is often assumed that agents are price takers and in that setting two common notions of equilibrium exist: Walrasian (or competitive) equilibrium, and its generalization; a price equilibrium with transfers. General equilibrium tries to give an understanding of the whole economy using a "bottom-up" approach, starting with individual markets and agents. Macroeconomics, as developed by the Keynesian economists, focused on a "top-down" approach, where the analysis starts with larger aggregates, the "big picture". Therefore general equilibrium theory has traditionally been classed as part of microeconomics. (194 Words)

Macro-economics                                                      (Dec.’06)                                                         2

Macro-economics is defined as that branch of economic analysis which studies the behaviour of not one particular unit, but of all the units combined together. It is study of the economics as a whole. The overall conditions of an economy say, total production, total consumption, total savings and total investment are studied under it. The fields covered by Macro-economics are- Theory of Income, Output and Employment, Theory of Prices, Theory of economic growth and Macro theory of distribution. (78 Words)

(Extra Questions)

Micro-economics

Micro-economics occupies a very important place in the study of economic theory. It has both theoretical and practical importance. From the theoretical point of view, it explains the functioning of a free enterprise economy. It tells us how millions of consumers and producers in an economy take decisions about the allocation of productive resources among millions of goods and services. It explains how through market mechanism goods and services produced in the community are distributed. It also explains the determination of the relative prices of the various products and productive services. It explains the conditions of efficiency both in consumption and production and departure from the optimum. As for practical importance, micro­economics helps in the formulation of economic polices calculated to promote efficiency in produc­tion and the welfare of the masses. Thus, the role of micro-economics is both positive and normative. It not only tells us how the economy operates but also how it should be operated to promote general welfare. Micro -economic analysis is also applicable to the various branches of economics such as public finance, international trade. (179 Words)

Q:      Show the difference between static and dynamic equilibrium.     

Ans:     Static equilibrium, relates to the equilibrium of a static or stationary economy. A stationary economy is a sort of closed economy where there is absolutely no incentive for change on the part of any organism whether it is production or population or any other organism. Population is constant in number as well as in composition. Production is also constant in the sense that the total stock does not change at all, the rates of production and consumption being constant and equal to each other. Prof. Boulding offers a mechanical analogy of static equilibrium in the form of a ball rolling at a constant speed or better still, in a forest in equilibrium where trees sprout, grow, and die, but where the composition of the forest as a whole remains unchanged. It is also pointed out that the concept of static equilibrium has hardly any validity in western capitalism. During its long history of two hundred years, western capital­ism, at no stage, exhibited any tendency towards static equilibrium. Some backward economies, on the other hand, like those of India and China in the past, showed definite symptoms of stationariness and stagnation. The concept of static equilibrium, therefore, is no mere form concept. It stands realized historically.

                                                                        

Dynamic equilibrium relates to a progressive economy which is the opposite of a stationary economy. The incentive to change is to be found in all the organisms of the economy. These organisms do undergo changes but the point to be noted is that the various organisms change at the same rate (whether in the direction of an increase or decrease). "An economic system might be said to be in dynamic equilibrium if its total stock, including both things and people, changed at a constant rate (per cent per annum), and if the rates of production and consumption of all items of the stock increased at the same rate." The point then to be noted is that the various organisms must change (whether in the upward or in the downward direction), and secondly, they must change at a uniform rate. If this meaning or dynamic equilibrium is accepted, then it becomes clear how very artificial and unrealistic this concept becomes. The organisms do change but they need not necessarily change at a uniform rate. As such, this concept is of little importance in interpreting "economic change because actual society never conforms to it. The con­cept of static equilibrium, on the other hand, is realistic and a historical possibility. But there is no reason to expect that any economy shall ever be in dynamic equilibrium. (428 Words)

Equilibrium

In economics equilibrium is said to exist in a market where the forces operating from the side of potential buyers exactly offsets the forces operating from the side of potential sellers. This means that when quantity supplied balances (matches) the quantity demanded, the market for that commodity reaches equilibrium. (49 Words)