What component is responsible for dynamics ?

Without a doubt, the LP or CD recording engineer. I have not read all the responses but dynamics are determined by the source material one is listening to. That said, on the component side, speakers and amplifier determine the systems ability to reproduce great dynamics. Keep in mind that any system regardless of price can actually produce the full dynamics of the recording as long as the loudest passages are at volume levels under the maximum spl for the system as a whole.

In other words, if I am playing a Telarc CD with difference of 50 db between its lowest and loudest passage, and I set my volume level to produce about 100db on its loudest passage(which is not very loud), when the orchestra crescendo's between that soft to loud passage most systems will accurately render this. Compression of dynamics starts to occur when you near the physical limitation of the drivers.

Where a great system comes into play is producing substantially louder passages, say at 110db or even 120db, without compressing the music. This limitation is driven by the efficency of the speaker, the size of the speaker, and the amps power. That's why a small speaker, like a totem dreamcatcher, with a 4.5" woofer is limiting. Its maximum spl might only be 102db (100db without compression) which puts the floor of some orchestral passages below the ambient room db level (due to a/c units, heating ducts etc).

Unfortunately for most audiophiles, many modern recordings are now compressing music and placing all instruments and vocals at loud levels due to the prolific use of personal music systems like ipods and automobile listening. This is to compensate for high background noise levels from road noise or public spaces.

To emphasize my point. Listen to some great source music through good headphones and you will here the full dynamic range of an orchestra as rendered by the source recording. Ultra low background noise allows you to hear the softest passages and their nuance. Since the driver is so close to the ear canal, loud passages are rendered with full dynamics and no compression. No change in Cd player will render different overall dynamics (unless that player is purposefully compressing dynamics, ipods do this).

Now, take the headphones off and increase the volume level so that you can hear the music at conversational levels with the headphones 3 ft away. The overall sound will be high pitched and AM radio sounding. Why? The sound is being compressed by the physical limitation of the drivers in the headphones. All the music, loud as well as soft passages are being played at or near the maximum spl of the headphone. This same characteristic applies to speakers. Hence the more effecient your speaker are, the louder you can drive the max spl without compression. This is also the reason that speakers with large and many drivers can give you great dynamics in a good size room. Little bookshelf speakers (without a sub) cannot, but will, if played at moderate to low volume levels.