DYNAMIC

SYSTEMS:
PHASE
DIAGRAM
S
MATHEMATICAL METHODS IN ECONOMICS
II ECONOMICS CORE COURSE IV : ECOA-
CC-2-4-TH-TU SEMESTER II
ANUPA GHOSH
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PHASE DIAGRAM
• Economic theories often deal with differential equations which

contains functions that do not have an explicit form like

𝑑𝑦
+ 𝑦 = 𝑡𝑦 2 , say
𝑑𝑡
1
• Hence, obtaining explicit quantitative solutions like 𝑦 = 𝑡 is
𝐶𝑒 +𝑡+1
difficult.
• In such cases, we are only interested in the qualitative properties of
the solution to the differential equation.
• One way to study the qualitative properties is by applying ‘PHASE
DIAGRAMS’
2
PHASE
DIAGRAM
(contd.)
Consider the following nonlinear, first-order autonomous differential equation:
𝑑𝑦
= 𝑦 − 𝑦 2 = 𝑦(1 − 𝑦)
𝑑𝑡
[Note: A differential equation that does not explicitly depends on time is called
𝑑𝑦
an autonomous differential equation. E.g., + 5𝑦 = 𝑡 is non-autonomous,
𝑑𝑡
𝑑𝑦
while + 5𝑦 = 3 is autonomous.]
𝑑𝑡
𝑑𝑦
The above system is in equilibrium when 𝑦 = 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡, i.e., =0
𝑑𝑡
This implies that for the above equation, at equilibrium, either 𝑦 = 0 𝑜𝑟 𝑦 = 1

3
PHASE
DIAGRAM
(contd.)
Given the above information, the following pairs of values can now be
𝑑𝑦
used to plot the phase diagram of the equation = 𝑦(1 − 𝑦)
𝑑𝑡
𝑦 −1 −0.5 0 0.5 1 1.5 𝑑𝑦
𝑑𝑦 −2 −0.75 0 0.25 0 -0.75 𝑑𝑡
𝑑𝑡

0 0.5 𝑡

4
PHASE DIAGRAM (contd.)
𝑑𝑦 𝑑𝑦
• Now 𝑑𝑡shows the change in 𝑦 per unit change in time. If > 0, then with time
𝑑𝑡
the value of 𝑦 is rising and vice-versa.
• That the phase diagram is reaching a maximum at 𝑦 = 0.5, can be verified
mathematically as follows
𝑑𝑦
𝑑( )
𝐹. 𝑂. 𝐶. 𝑜𝑓 𝑚𝑎𝑥𝑖𝑚𝑖𝑠𝑎𝑡𝑖𝑜𝑛 𝑖𝑠 𝑑𝑡 = 0
𝑑𝑦
i.e., 1 − 2𝑦 = 0 → 𝑦 = 0.5
2 𝑑𝑦
𝑑 ( )
𝑆. 𝑂. 𝐶. 𝑜𝑓 𝑚𝑎𝑥𝑖𝑚𝑖𝑠𝑎𝑡𝑖𝑜𝑛, 𝑑𝑡 = −2 < 0.
𝑑𝑦 2
𝑑𝑦
• Hence is maximum at 𝑦 = 0.5
𝑑𝑡
PHASE DIAGRAM (contd.)
• It has already been proved that 𝑦 reaches equilibrium at 𝑦 = 0 and 𝑦 = 1.
At each of the equilibrium the system stabilizes and continues to remain
there, i.e., either at 𝑦 = 0 or at 𝑦 = 1.
𝑑𝑦
• In the range 0 < 𝑦 < 1, it is evident from the phase diagram that 𝑑𝑡 > 0.
Hence, if ever the value of 𝑦 > 0, the value of 𝑦 will increase until it reaches
1. When it reaches 1, the value will remain there as it is an equilibrium.
Therefore, in the range 0 < 𝑦 < 1, the arrowheads drawn show that 𝑦
increases as it moves from 0 to 1.
𝑑𝑦
• When 𝑦 > 1, it is evident from figure that < 0. Hence here the value of
𝑑𝑡
𝑦 falls as indicated by the arrowhead. The value will continue to fall until it
reaches the point 𝑦 = 1, where it will remain.
PHASE DIAGRAM (contd.)
𝑑𝑦
• Similarly, when 𝑦 < 0, it is again evident from the phase diagram that <
𝑑𝑡
0. Hence here the value of 𝑦 falls as indicated by the arrowhead. The value
will continue to fall and will continuously move towards −∞.
• Further, from the direction of the arrowheads it is clear that there is a
characteristic difference between the two equilibriums, 𝑦 = 0 & 𝑦 = 1.
• It is evident that once destabilized from equilibrium at 𝑦 = 1, the system,
over time will adjust and will move back into equilibrium at 𝑦 = 1. So this is
a stable equilibrium.
• Exactly the opposite occurs at 𝑦 = 0, which therefore, is an unstable
equilibrium.
• Thus without actually solving the differential equation, one can use the
PHASE DIAGRAM conduct a qualitative analysis of a dynamic system.
PHASE DIAGRAM (contd.)

𝑑𝑦
𝑑𝑡

fluctuating – not
unstable an equilibrium
stable
PHASE DIAGRAM (contd.)

• The slope of the phase line at the intersection point that shows
whether the equilibrium is stable or unstable.
𝑑 𝑦ሶ 𝑑𝑦
• A finite positive slope, i.e., > 0 (𝑤ℎ𝑒𝑟𝑒 𝑦ሶ = ) implies dynamic
𝑑𝑦 𝑑𝑡
instability
𝑑 𝑦ሶ 𝑑𝑦
• A finite negative slope, i.e., < 0 (𝑤ℎ𝑒𝑟𝑒 𝑦ሶ = ) implies dynamic
𝑑𝑦 𝑑𝑡
stability