Stock and Flow are two most important concepts in Economics. Some of the Macro Economics variables relate to stock concept while other variables relate to flow concept. However, here we will see how we identity such variables as stock and flow. Firstly, we have to define what stock is and what flow is.
Stock as a concept is related to a particular point of time. As such, stock variables are those variables which are measured at a particular point of time. For example, a seller of televisions has 100 televisions on 31 Dec. 2023. Here, the quantity of televisions on a particular date i.e. on 31 Dec. indicates stock of televisions available with the seller. In this way, we can say that stock is a quantity of something which is available with someone at a particular point of time.
Definition of Flow:
Flow as a concept is related to a period of time. As such, flow variables are those variables which are measured over a period of time. For example, a seller of televisions sold 100 televisions during the month of December, 2023. Here, the quantity sold by the seller over a period of time i.e. in the month of December indicates flow of his sale of televisions during a period of time. In this way, we can say that flow is a quantity measured over a period of time.
Difference between Stock and Flow
We can differentiate Stock and Flow on several grounds such as meaning of the concepts, time dimension present in the concepts and nature of the concepts. Let’s find out the differences between these two concepts on above mentioned grounds as below:
Meaning of the concepts
Stock is a quantity which is measured at a particular point of time.
Flow is a quantity which is measured over a period of time.
Time Dimension in the concepts
Stock does not have a time dimension as magnitude of stock quantities is measured only at a point of time not over a period of time.
Flow has a time dimension as magnitude of flow quantities is measured over a period of time not at a point of time.
Nature of the concepts:
Stock is a static concept.
Flow is a dynamic concept.
Stock and Flow are interrelated to each-other
Though both concepts have any many differences, yet they are interrelated and determine each other. We can understand this with the help of following example:
Credit: keydifferences.com
Suppose a seller of televisions has 100 televisions on Dec. 31, 2023. During the month of January 2024, he sells 70 televisions and at the end of month i.e. on 31 January 2024 he is left with 30 televisions with him.
In the above example, quantity of 100 televisions is a stock quantity as it is the total amount of televisions available with the seller of a particular point of time i.e. on Dec. 31, 2023. Now, out this stock of 100 televisions, we can estimate the quantity of flow which is 70 televisions sold in the month of January, 2024. Hence, quantity of 100 televisions (stock quantity) determines the volume of flow quantity (70 television). Further, when 70 televisions are sold, the seller is left with 30 televisions as stock quantity on January 31, 2024. Here, the flow quantity (70 televisions) determines the stock quantity (30 television). Hence, we can say that both stock and flow are interrelated to each other and they determine each other.
Are they flow or stock quantities?
There are many variables in Economics which can be termed as stock or flow. You may identify and comment the right answer in comment box with explanation:
