Question

Although causal loop diagrams are wonderfully useful in many situations, they suffer from a number of limitations and can be easily abused. One of the most important limitations of causal diagrams is their inability to capture the stock and flow structure of systems. Stocks and flows, along with feedback, are the two central concepts of dynamic systems theory.

.         Explain what is meant by stock and flow and support your answer with examples. ( 700 WORDS)

Answer 1

STOCK & FLOW

STOCK & FLOW TERM CAN BE EXPLAINED IN VARIOUS FIELD LIKE IN ECONOMICS,BUSINESS,ACCOUNTING ETC.

IN SIMPLE WORDS STOCK IS THE PRESENT QUANTITY WHICH IS IN OUR HAND AND FLOW MEANS THE QUANTITY WHICH HAVE A FLOW OCCURRED BY REMAINING STOCK.

IN CASE OF TRADING BUSINESS STOCK MAY BE THE QUANTITY OF ITEMS REMAINING IN OUR HAND AFTER PURCHASE AND SALES OCCUR.BUT PROCESS IS THE QUANTITY WHICH IS UTILISED AT TIME OF PURCHASE AND SALE OF THE PRODUCT.

A STOCK REFERS TO THE VALUE OF AN ASSET AT A BALANCE DATE WHILE A FLOW REFERS TO THE TOTAL VALUE OF TRANSACTIONS (SALES OR PURCHASES, INCOMES OR EXPENDITURES) DURING PERIOD. IF THE FLOW VALUE OF AN ECONOMIC ACTIVITY IS DIVIDED BY THE AVERAGE STOCK VALUE DURING PERIOD, WE OBTAIN A MEASURE OF THE NUMBER OF TURNOVERS (OR ROTATIONS) OF A STOCK IN THAT ACCOUNTING PERIOD. SOME ACCOUNTING ENTRIES ARE NORMALLY ALWAYS REPRESENTED AS A FLOW (E.G. PROFIT OR INCOME), WHILE OTHERS MAY BE REPRESENTED BOTH AS A STOCK OR AS A FLOW (E.G. CAPITAL).

A STOCK IS MEASURED AT ONE SPECIFIC TIME, AND REPRESENTS A QUANTITY EXISTING AT THAT POINT IN TIME STOCKS AND FLOWS HAVE DIFFERENT UNITS.THEY CANNOT BE MEANINGFULLY COMPARED, EQUATED, ADDED, OR SUBTRACTED. HOWEVER, ONE MAY MEANINGFULLY TAKE RATIOS OF STOCKS AND FLOWS, OR MULTIPLY OR DIVIDE THEM. THIS IS A POINT OF SOME CONFUSION FOR SOME ECONOMICS STUDENTS, AS SOME CONFUSE TAKING RATIOS (VALID) WITH COMPARING (INVALID).

STOCK IS QUANTITY OF AN ECONOMIC VARIABLE WHICH IS MEASURED AT PARTICUALR POINT OF TIME.AND FLOW IS QUANTITY OF AN ECONOMIC VARIABLE WHICH IS MEASURED DURING A PERIOD OF TIME.STOCK CONCEPT IS A STATIC CONCEPT AND FLOW IS A DYNAMIC CONCEPT.

FLOW HAS A TIME DIMENSION AS PER HOUR,PER DAY,PER MONTH.BUT STOCK HAS NO TIME DIMENSION.