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Lecture 06

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8 views

Lecture 06

Uploaded by

lucanhpham1106
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Input - Output Model

Tan Duc Do

Tan Duc Do Input - Output Model 1/7


Introduction
Hypothesis Consider an economy with n (internal) sectors (industries)
sector 1, sector 2, ..., sector n.
Within a fixed period of time, we assume
Xi is the total production (production level) of sector i
Di is the number of units produced by sector i that is used for
external demands (external sectors)
aij is the number of units produced by sector i that is supplied to
sector j so that sector j can produce 1 unit of output
Problem: Determine the relation between the production vector

X = [X1 X2 ··· Xn ]T ,

and the external demand D = [D1 D2 ··· Dn ] T .


(exchanging rates aij between the sectors are fixed)
Tan Duc Do Input - Output Model 2/7
Remark
Input coefficient matrix (Leontief matrix)
 
a11 a12 · · · a1n
a21 a22 · · · a2n 
A= · · · · · · · · ·

· · ·
an1 an2 · · · ann

For sector j to produce 1 unit of output, the input units required of other
sectors is
n
∑ aij
i =1
This is economically justifiable (profitable) when ∑ni=1 aij < 1.
The coefficient
n
a0j = 1 − ∑ aij
i =1
is the exchanging rate between the external sectors and sector j in order for
sector j to produce 1 unit of output.
Tan Duc Do Input - Output Model 3/7
Remark

The term
ai1 X1 + ai2 X2 + · · · + ain Xn
is the number of units produced by sector i which is directed as input
for itself and other internal sectors.
The output units that sector i supply to external sectors

Xi − (ai1 X1 + ai2 X2 + · · · + ain Xn )

(row i of the column vector X − AX )


Therefore, we obtain the equation

X − AX = D or (I − A)X = D

Tan Duc Do Input - Output Model 4/7


Example

Consider the input-output model which consists of 3 sectors. Given


that the coefficient matrix is
 
0.1 0.2 0.3
A = 0.3 0.1
 0.1 .
0.2 0.3 0.2

Discuss the economic meaning of the coefficient a21 = 0.3


Find the production outputs of the three sectors if the external
demands for these sectors are respectively 39, 49 và 16
Due to technical improvements, sector 2 saves 25% input units from
sector 1. Calculate the production of sector 3 if the external demands
do not change.

Tan Duc Do Input - Output Model 5/7


Note

The matrix I − A is invertible. Therefore, the system (I − A)X = D


has a unique solution and

X = ( I − A ) −1 D

The elements in (I − A)−1 are positive


∆D1
 

If the external demand increases by ∆D =  ...  , then the increase


 

∆Dn
in the production of the internal sectors is determined by

∆X = (I − A)−1 ∆D

Tan Duc Do Input - Output Model 6/7


Determine the Leotief matrix

Example
The relation of using the outputs of each other for production and
external demand is given by the following table (in millions of USDs):
Consuming sector
(Internal demand) External demand
Producing sector
N1 N2 N3
N1 50 10 80 10
N2 40 30 20 40
N3 20 60 10 50
Let A be the input coefficient matrix and A1 , A2 , A3 the 1st, 2nd, 3rd
columns of A.

Calculate the total demand of each sector and find A.


Calculate 100A2 and interpret its meaning.

Tan Duc Do Input - Output Model 7/7

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