Exercise Set 1.

11

1. An automobile mechanic (𝑀) and a body shop (𝐵) use each TABLE Ex-3
other’s services. For each $1.00 of business that 𝑀 does, it uses
Input Required per Dollar Output
$0.50 of its own services and $0.25 of 𝐵’s services, and for each
$1.00 of business that 𝐵 does it uses $0.10 of its own services Housing Food Utilities
and $0.25 of 𝑀’s services.
Housing $ 0.10 $ 0.60 $ 0.40

Provider
a. Construct a consumption matrix for this economy.
Food $ 0.30 $ 0.20 $ 0.30
b. How much must 𝑀 and 𝐵 each produce to provide cus-
tomers with $7000 worth of mechanical work and $14,000 Utilities $ 0.40 $ 0.10 $ 0.20
worth of body work?
4. A company produces Web design, software, and networking
2. A simple economy produces food (𝐹) and housing (𝐻). The services. View the company as an open economy described by
production of $1.00 worth of food requires $0.30 worth of food the accompanying table, where input is in dollars needed for
and $0.10 worth of housing, and the production of $1.00 worth $1.00 of output.
of housing requires $0.20 worth of food and $0.60 worth of a. Find the consumption matrix for the company.
housing.
b. Suppose that the customers (the open sector) have a
a. Construct a consumption matrix for this economy. demand for $5400 worth of Web design, $2700 worth of
b. What dollar value of food and housing must be produced software, and $900 worth of networking. Use row reduc-
for the economy to provide consumers $130,000 worth of tion to find a production vector that will meet this demand
food and $130,000 worth of housing? exactly.

TABLE Ex-4
3. Consider the open economy described by the accompany-
ing table, where the input is in dollars needed for $1.00 of Input Required per Dollar Output
output.
Web Design Software Networking
a. Find the consumption matrix for the economy.
Web Design $ 0.40 $ 0.20 $ 0.45
Provider

b. Suppose that the open sector has a demand for $1930 worth
of housing, $3860 worth of food, and $5790 worth of utili- Software $ 0.30 $ 0.35 $ 0.30
ties. Use row reduction to find a production vector that will Networking $ 0.15 $ 0.10 $ 0.20
meet this demand exactly.
In Exercises 5–6, use matrix inversion to find the production vector the other entries fixed. Prove that the production vector xj
x that meets the demand d for the consumption matrix 𝐶. that meets this demand is
0.1 0.3 50 xj = x + jth column vector of (𝐼 − 𝐶)−1
5. 𝐶 = [ ]; d = [ ]
0.5 0.4 60
b. In words, what is the economic significance of the jth col-
0.3 0.1 22 umn vector of (𝐼 − 𝐶)−1 ? [Hint: Look at xj − x.]
6. 𝐶 = [ ]; d = [ ]
0.3 0.7 14
11. Prove: If 𝐶 is an n × n matrix whose entries are nonnegative
7. Consider an open economy with consumption matrix and whose row sums are less than 1, then 𝐼 − 𝐶 is invertible
and has nonnegative entries. [Hint: (𝐴𝑇 )−1 = (𝐴−1 )𝑇 for any
1
2 0 invertible matrix 𝐴.]
𝐶=[ ]
0 1
a. Show that the economy can meet a demand of d1 = 2 units True-False Exercises
from the first sector and d2 = 0 units from the second sec- TF. In parts (a)–(e) determine whether the statement is true or
tor, but it cannot meet a demand of d1 = 2 units from the false, and justify your answer.
first sector and d2 = 1 unit from the second sector.
a. Sectors of an economy that produce outputs are called
b. Give both a mathematical and an economic explanation of open sectors.
the result in part (a).
b. A closed economy is an economy that has no open sectors.
8. Consider an open economy with consumption matrix
c. The rows of a consumption matrix represent the outputs
1 1 1 in a sector of an economy.
⎡2 4 4⎤
⎢1 1 1⎥ d. If the column sums of the consumption matrix are all less
𝐶= ⎢2 8 4⎥
⎢1 1 1⎥ than 1, then the Leontief matrix is invertible.
⎣2 4 8⎦
e. The Leontief equation relates the production vector for an
If the open sector demands the same dollar value from each economy to the outside demand vector.
product-producing sector, which such sector must produce the
greatest dollar value to meet the demand? Working with Technology
9. Consider an open economy with consumption matrix T1. The following table describes an open economy with
three sectors in which the table entries are the dollar
c11 c12 inputs required to produce one dollar of output. The out-
𝐶=[ ]
c21 0 side demand during a 1-week period if $50,000 of coal,
$75,000 of electricity, and $1,250,000 of manufacturing.
Show that the Leontief equation x − 𝐶x = d has a unique Determine whether the economy can meet the demand.
solution for every demand vector d if c21 c12 < 1 − c11 .
Input Required per Dollar Output

Working with Proofs Electricity Coal Manufacturing

10. a. Consider an open economy with a consumption matrix Electricity $ 0.1 $ 0.25 $ 0.2
Provider

𝐶 whose column sums are less than 1, and let x be the

Coal $ 0.3 $ 0.4 $ 0.5
production vector that satisfies an outside demand d; that
is, (𝐼 − 𝐶)−1 d = x. Let dj be the demand vector that is Manufacturing $ 0.1 $ 0.15 $ 0.1
obtained by increasing the jth entry of d by 1 and leaving