Leontief Input - Output Analysis/ DR.

SHIRSENDU MUKHERJEE

Leontief Input - Output Analysis

1 What is Input- Output analysis?

Input- Output analysis explains the interdependence and interrelationship of inputs and

outputs of various industries in the economy. It is a method of analysing how an industry

undertakes production by using the output of other industries in the economy, and how

the output of the given industry is used up in other industries of the same economy.

In its "static" version, the Input- Output analysis of Professor W. Leontief, a Nobel

Prize winner, deals with this particular version: What level of output should each of

the n industries in an economy produce, in order that it is just be su¢ cient to satisfy

the total demand for the product? I n view of the interindustry dependence, any set of

"correct" output levels for the n industries must be one that is consistent with all the

input requirements in the economy, so that no bottlenecks will arise anywhere.

2 Assumptions

1. Each industry produces only one homogeneous commodity;

[ This does permit the case of two or more jointly produced commodities, provided

they are produced in a …xed proportion to one another ]

2. Each industry uses a …xed input ratio (or factor combination) for the production

of its output;

3. Production in every industry is subject to CRS.

To make these assumptions more realistic, it may be considered that, if an industry

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 Leontief Input - Output Analysis/ DR. SHIRSENDU MUKHERJEE

produces two di¤erent commodities or uses two di¤erent possible factor combinations,

then that industry may be broken down into two seperate industries.

3 The Structure of the Model

Our model is a static one in the sense that all the variables in the model refer to the

same period of time. If, besides n industries, the model also contains an open sector (say,

household) which exogeneously determines …nal demand (non input demand) for the

product of each industry, and which supplies a primary input (say, labour service) not

produced by the n industries themselves, the model is open model. But, if the exogeneous

sector (open) sector of the open input output model is absorbed into the system, as just

another industry, the model will become a closed model.

Let our input output table be given by Table 1.

Table 1: Input Output Table

Output Final Total

Input # I II III ::: N DD (d) Prodt. (x)

I x11 x12 x13 ::: x1n d1 x1

II x21 x22 x23 ::: x2n d2 x2

III x31 x32 x33 ::: x3n d3 x3

::: ::: ::: ::: ::: ::: ::: :::

N xn1 xn2 xn3 ::: xnn dn xn

Labour (L) x01 x02 x03 ::: x0n x0

Where, xij ) Amount of output of the ith industry going to the jth industry

(i; j = 1; 2; :::; n) ;

x0i ) Amount of labour services used in the ith industry (i = 1; 2; :::; n) ;

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 Leontief Input - Output Analysis/ DR. SHIRSENDU MUKHERJEE

xi = f (x1i ; x2i; :::; xni; x0i ) ) xi is produced by using (x1i ; x2i; :::; xni; x0i ) as inputs.

xi = xi1 + xi2 + xi3 + ::: + xin + di ( i = 1; 2; 3; :::; n)

3.1 The Closed Framework

In the closed model, all the goods are intermediate in nature, for everything that is

produced, is produced for the sake of satisfying the input requirements of the other

industries of the model.

Let,

aij = Required minimum input of commodity i, per unit of output of commodity

j (the …rst subscript refers to the input, and the second to the output),

) aij = In order to produce each unit of jth commodity, the input need for the ith

commodity

) aij = How much of the ith commodity be used for the production of each unit of

the jth commodity

) aij = In order to produce each unit of the jth commodity, the input need for the

ith commodity must be a …xed amount.

) aij = "Input Co¢ cient" which is assumed to be …xed.

For an n industry economy, the input co¢ cients can be arranged into a matrix, A =

[aij ] ; as shown in the table 2, in which each column speci…es the input requirements for

the production of one unit of the output of a particular industry.

It is to note that if no industry uses its own product as an input, then the elements

in the principal diagonal of matrix A will all be zero.

Table 2: Input Coe¢ cient Matrix (closed model)

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 Leontief Input - Output Analysis/ DR. SHIRSENDU MUKHERJEE

Output

Input # I II III ::: N

I a11 a12 a13 ::: a1n

II a21 a22 a23 ::: a2n

III a31 a32 a33 ::: a3n

::: ::: ::: ::: ::: :::

N an1 an2 an3 ::: ann

Here, in a static model, it is to observe that each column sum represents the …nal

input cost incurred in producing a Rupee’s worth of some commodity. Symbolically,

X
n
aij = 1; ( j = 1; 2; 3; :::; n) ;
i=1

where the summation is over i, that is, over the elements appearing in the various rows

of a speci…c column j.

If industry I is to produce an output just su¢ cient to meet the input requirements

of the n industries of the closed sector, its output level x1 must satisfy the following

equation:

x1 = a11 x1 + a12 x2 + ::: + a1n xn

That is in general,

X
n
xi = ai1 x1 + ai2 x2 + ::: + ain xn = aij :xj ; ( i = 1; 2; 3; :::; n)
j=1

P
n
where aij xj represents the input demand from the jth industry; and aij :xj repre-
j=1

sents the total amount of xi needed as input for the n industries.

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 Leontief Input - Output Analysis/ DR. SHIRSENDU MUKHERJEE

3.2 The Open Framework

If the n industries in table 1 constitute the entirety of the economy, then all their products

would be for the sole purpose of meeting the input demand of the same n industries (to

be used in further production) as against the …nal demand (such as consumer demand,

not for further production). At the same time, all the inputs used in the economy would

be in the nature of intermediate inputs (those supplied by the n industries) as against

primary inputs (such as labour, not an industrial product).

To allow for the presence of …nal demand and primary inputs, we must include in the

model an open sector outside the n industry network.

Here, in a open model, it is to observe that each column sum represents the partial

input cost (not including the cost of primary inputs) incurred in producing a Rupee’s

worth of some commodity. Symbolically,

X
n
aij < 1; ( j = 1; 2; 3; :::; n) ;
i=1

where the summation is over i, that is, over the elements appearing in the various rows

of a speci…c column j. Thus, the value of primary inputs needed in producing a unit of
P
n
the jth commodity should be 1 aij > 0 :
i=1

Then the relevant input-coe¢ cient matrix is given by the table 3.

Table 3: Input Coe¢ cient Matrix (open model)

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Output Final

Input # I II III ::: N Demand

I a11 a12 a13 ::: a1n d1

II a21 a22 a23 ::: a2n d2

III a31 a32 a33 ::: a3n d3

::: ::: ::: ::: ::: ::: :::

N an1 an2 an3 ::: ann dn

Primary Input a01 a02 a03 ::: a0n

If industry I is to produce an output just su¢ cient to meet the input requirements of

the n industries as well as the …nal demand of the open sector, its output level x1 must

satisfy the following equation:

x1 = a11 x1 + a12 x2 + ::: + a1n xn + d1

) d1 = x1 (a11 x1 + a12 x2 + ::: + a1n xn )

) (1 a11 ) x1 a12 x2 ::: a1n xn = d1

By the same token, the output levels of all the n industries should satisfy the following

system of linear equations:

a21 x1 (1 a22 ) x2 ::: a2n xn = d2

a31 x1 a32 x2 (1 a33 ) x3 ::: a2n xn = d2

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:::::::::::::::::::::::::::::::::::::::::::::

an1 x1 an2 x2 ::: (1 ann ) xn = dn

In matrix form, this may be written as:

2 32 3 2 3
6 (1 a11 ) a12 ::: a1n
7 6 x1 7 6 d1 7
6 76 7 6 7
6 76 7 6 7
6 a21 (1 a22 ) ::: a2n 7 6 x2 7 6 d2 7
7 6 7 6
6 7
6 76 7=6 7
6 76 7 6 7
6 ::: ::: ::: ::: 7 6 ::: 7 6 ::: 7
6 76 7 6 7
6 76 7 6 7
4 54 5 4 5
an1 an2 ::: (1 ann ) xn dn
2 3
6 1 0 ::: 0 7
6 7
6 7
6 0 1 ::: 0 7
6 7
)6
6
7+
7
6 ::: ::: ::: ::: 7
6 7
6 7
4 5
0 0 ::: 1
2 32 3 2 3
6 ( a11 ) a12 ::: a1n 7 6 x1 7 6 d1 7
6 76 7 6 7
6 76 7 6 7
6 a21 ( a22 ) ::: a2n 7 6 7 6 d 7
6 7 6 x2 7 6 2 7
6 76 7=6 7
6 76 7 6 7
6 ::: ::: ::: ::: 7 6 7 6 ::: 7
6 7 6 ::: 7 6 7
6 76 7 6 7
4 54 5 4 5
an1 an2 ::: ( ann ) xn dn
2 3
6 1 0 ::: 0 7
6 7
6 7
6 0 1 ::: 0 7
6 7
)6
6
7
7
6 ::: ::: ::: ::: 7
6 7
6 7
4 5
0 0 ::: 1

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2 32 3 2 3
6 (a11 ) a12 ::: a1n 7 6 x1 7 6 d1 7
6 76 7 6 7
6 76 7 6 7
6 a ::: a2n 7 6 x2 7 6 d2 7
6 21 (a22 ) 76 7 6 7
6 76 7=6 7
6 76 7 6 7
6 ::: ::: ::: ::: 7 6 ::: 7 6 ::: 7
6 76 7 6 7
6 76 7 6 7
4 54 5 4 5
an1 an2 ::: (ann ) xn dn

) (I A) x = d

2 3
6 x1 7
6 7
6 7
6 x 7
6 2 7
)x =6
6
7 = (I
7 A) 1
:d
6 ::: 7
6 7
6 7
4 5
xn
2 3 2 3
6 1 0 ::: 0 7 6 (a11 ) a12 ::: a1n 7
6 7 6 7
6 7 6 7
6 0 1 ::: 0 7 6 a ::: a2n 7
6 7 6 21 (a22 ) 7
where, I = 6
6
7 = In = Identity Matrix , A = 6
7 6
7=
7
6 ::: ::: ::: ::: 7 6 ::: ::: ::: ::: 7
6 7 6 7
6 7 6 7
4 5 4 5
0 0 ::: 1 an1 an2 ::: (ann )
2 3 2 3
6 x1 7 6 d1 7
6 7 6 7
6 7 6 7
6 x 7 6 d 7
6 2 7 6 2 7
Input Coe¢ cient Matrix, x = 6
6
7 = Variable vector, d = 6
7 6
7 = …nal demand
7
6 ::: 7 6 ::: 7
6 7 6 7
6 7 6 7
4 5 4 5
xn dn
(constant term) vector.

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4 The Existence of Non negative Solutions (Open

Model)

Theorem 1 According to Hawkins- Simon Theorem, given (a) an (n n) matrix B;

with bij 0 (i 6= j) (i.e., withall o¤ diagonal elements non-positive), and (b) an (n 1)

vector d 0 (all elements non-negative), there exists an (n 1) vector x 0 such that

Bx = d; i¤ jBm j > 0 (m = 1; 2; :::; n) i.e., i¤ the leading principal minors of B are all

positive.

Here, we know,

1
x = (I A) :d

1
) x = (B) :d;

where, let B = (I A)

) Bx = d

The existence of x 0 guarantees nonnegative solution output levels. The necessary

and su¢ cient condition for this, known as Hawkins - Simon condition, is that all the

leading principal minors of the Leontief Input Coe¢ cient Matrix, i.e., B = (I A) be

positive.

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For a two industry (n = 2) case, the Leontief Input Coe¢ cient Matrix is

2 3
6 (1 a11 ) a12 7
B = (I A) = 6
4
7
5
a21 (1 a22 )

1 1 Adj B
) B = (I A) =
jBj

1 (1 a22 ) a12
=
jBj
a21 (1 a11 )

(1 a22 ) a12

a21 (1 a11 )
=
(1 a11 ) (1 a22 ) a21 a12

Hence,

2 3
6 x1 7
x = 6
4
7
5
x2
2 3
(1 a22 ) a12
(1 a11 )(1 a22 ) a21 a12 (1 a11 )(1 a22 ) a21 a12 6 d1 7
= :6
4
7
5
a21 (1 a11 )
(1 a11 )(1 a22 ) a21 a12 (1 a11 )(1 a22 ) a21 a12
d2
2 3
[(1 a22 ):d1 +a12 :d2 ]
6 x1 = [(1 a11 )(1 a22 ) a21 a12 ] 7
= 6
4
7
5
[a21 :d1 +(1 a11 ):d2 ]
x2 = [(1 a11 )(1 a22 ) a21 a12 ]

Alternatively, we can solve the same by using Cramer’s Rule:

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2 32 3 2 3
6 (1 a11 ) a12 7 6 x1 7 6 d1 7
6 76 7=6 7
4 54 5 4 5
a21 (1 a22 ) x2 d2

2 3
6 x1 7
) x =64
7
5
x2
82 3
>
>
>
> 6 d1 a12 7
>
> 6 7
>
> 6 7
>
> 6 7
>
> 6 d2 (1 a22 ) 7
>
> 6 7
>
> 6 7
>
> 6 (1 a ) 7
>
>6 a 7
>
> 6
11 12
7
>
> 6 7
>
>
<66 a 21 (1 a 22 ) 7
7
= 6 7
> 6 7
>
> 6 (1 a11 ) d1 7
>
> 6 7
>
> 6 7
>
> 6 7
>
> 6 7
>
> 6 a21 d2 7
>
> 6 7
>
> 6 7
>
> 6 7
>
> 6 (1 a 11 ) a 12 7
>
> 6 7
>
> 4 5
>
: a21 (1 a22 )
2 3
[(1 a22 ):d1 +a12 :d2 ]
6 x1 = [(1 a11 )(1 a22 ) a21 a12 ] 7
= 6
4
7
5
[a21 :d1 +(1 a11 ):d2 ]
x2 = [(1 a11 )(1 a22 ) a21 a12 ]

Hence,
[(1 a22 ) :d1 + a12 :d2 ] (1 a22 ) a12
x1 = = :d1 + :d2
[(1 a11 ) (1 a22 ) a21 a12 ] jBj jBj

[a21 :d1 + (1 a11 ) :d2 ]

x2 =
[(1 a11 ) (1 a22 ) a21 a12 ]
a21 (1 a11 )
= :d1 + :d2
jBj jBj

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where,

(1 a11 ) a12
jBj =
a21 (1 a22 )
= [(1 a11 ) (1 a22 ) a21 a12 ]

So, for the existence of x 0; we require (1 a11 ) > 0; (1 a22 ) > 0; a12 > 0; a21 > 0;

[(1 a11 ) (1 a22 ) a21 a12 ] > 0: This is Hawkins-Simon Condition.

4.1 Economic Meaning of H-S Condition

For a two industry (n = 2) case, the HS condition requires that leading principal minors

of B are all positive. That is, we require:

jB1 j = (1 a11 ) > 0

) 1 > a11 > 0

Economically, jB1 j > 0 implies that the amount of the 1st commodity used in the

production of a rupee’s worth of the …rst commodity to be less than one rupee.

Similarly, 0 < a22 < 1:

And, we more require:

(1 a11 ) a12
jBj = jB2 j = >0
a21 (1 a22 )
) (1 a11 ) (1 a22 ) ( a21 ) ( a12 ) > 0

) [(1 a11 ) (1 a22 ) a21 a12 ] > 0

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) (1 a11 ) a22 (1 a11 ) a12 a21 > 0

) (1 a11 ) + a22 (1 a11 ) + a12 a21 < 0

) a11 + a22 (1 a11 ) + a12 a21 < 1

) a11 + a12 a21 < 1 (* a22 (1 a11 ) > 0)

Economically, a11 measures the direct use of the 1st commodity as input in the production

of the …rst commodity itself, and a12 a21 measures the indirect use - it gives the amount of

the …rst commodity needed in producing the speci…c quantity of the second commodity

that goes into the production of a rupee’s worth of the …rst commodity. Thus jB2 j > 0

implies that that the amount of the 1st commodity used as direct and indirect inputs in

producing of a rupee’s worth of the …rst commodity itself, must be less than one rupee.

Moreover, a12 > 0; a21 > 0 ensures that there exists an interdependence between the

two industries.

Thus HS condition does it to specify certain practicability and viability restrictions

for the production process. If and only if the process is economically practicable and

viable, can it yield meaningful, nonnegative solution output levels.

4.1.1 Geometric Explanation

We know, for n = 2; and di > 0 (i = 1; 2) ;

x1 = a11 x1 + a12 x2 + d1
1 a11 d1
) x2 = x1 +
a12 a12

1 a11 d1
Slope: a12
> 0; Intercept: a12
< 0:

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Similarly,

x2 = a21 x1 + a22 x2 + d2
a21 d2
) x2 = x1 +
1 a22 1 a22

a21 d2
Slope: 1 a22
> 0; Intercept: 1 a22
> 0:

The two equations cut each other in the 1st quadrant, i¤ the slope of the former is

greater than the later. That is,

1 a11 a21
>
a12 1 a22

) [(1 a11 ) (1 a22 ) a21 a12 ] > 0

) jBj > 0; which agrees to the HS condition.

4.2 Closed model

In a closed model,

(I A) x = 0

For a set of non trivial solutions to exist (i.e., x 6= 0), we must …nd jI Aj = 0: This

guarantees that the system does possess nontrivial solutions, in fact it has an in…nite

number of them. This means, in a closed model, with a homogeneous equation system,

no unique "correct" output mix exists.

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5 Role of Primary Input

To produce 1 unit of x1 ; we require a01 units of Primary Input; and to produce 1 unit

of x2 ; we require a02 units of Primary Input. That is, to produce 1 unit of x1 ; and

to produce 1 unit of x2 ; total required amount of primary input (x0 ) must satisfy the

following equation:

x0 a01 x1 + a02 x2
a01 1
) x2 = x1 + x0
a02 a02

a01 1
Slope: a02
< 0,and Intercept: a02
x0 > 0.

This downward sloping straight line should lie on or to the right hand side of the

equilibrium point (x1 ; x2 ) :

6 Consumption Possibility Locus

We know,

(1 a22 ) a12
x1 = :d1 + :d2
jDj jDj
= A11 :d1 + A12 :d2

a21 (1 a11 )
x2 = :d1 + :d2
jDj jDj
= A21 :d1 + A22 :d2

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where, Aij = Direct and indirect requirement of the i th commodity to support one unit

of …nal demand of the j th industry.

Here it is to note that

@x1 @x @x @x
= A11 ; 1 = A12 ; 2 = A21 ; 2 = A22
@d1 @d2 @d1 @d2

) If d1 is to be changed by one unit, we require A11 units of x1 ; and A21 units of x2 ; and

If d2 is to be changed by one unit, we require A12 units of x1 ; and A22 units of x2 :

That means, if we want to have d1 units of x1 and d2 units of x2 as the …nal demands,

then to meet these …nal demands, the total direct and indirect requirement of the two

commodities, respectively, are

x1 = A11 :d1 + A12 :d2

x2 = A21 :d1 + A22 :d2

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Putting these values of (x1 ; x2 ) in the primary input demand function, we get

x0 = a01 x1 + a02 x2

= a01 (A11 :d1 + A12 :d2 )

+a02 (A21 :d1 + A22 :d2 )

= a01 A11 :d1 + a01 A12 :d2

+a02 A21 :d1 + a02 A22 :d2

= (a01 A11 + a02 A21 ) :d1

+ (a01 A12 + a02 A22 ) :d2

= (A01 ) :d1 + (A02 ) :d2

where, A0i (i = 1; 2) = Direct and indirect requirement of theprimary input to support

one unit of …nal demand of the i th commodity.

Now,
A01 x0
d2 = :d1 +
A02 A02

A01 x0
Slope: A02
< 0,and Intercept: A02
> 0.

This is the C.P.L. of the economy. It gives di¤erent combinations of d1 and d2 which

the society can provide with the fullest utilization of the primary input.

7 Prices in the Leontief System

Let, n = 2:

Let, p1 be the per unit price of x1 ;and p2 be the per unit price of x2 ; and let w be the

per unit price of primary input, say labour.

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We know, to produce one unit of x1 ; we require a11 units of x1 and a21 units of x2 and

a01 units of labour. Hence,

p1 = a11 p1 + a21 p2 + a01 w

Similarly,

p2 = a12 p1 + a22 p2 + a02 w

Solving by using Cramer’s Rule, we get:

a01 (1 a22 ) a21 a02

p1 = :w + :w
jDj jDj
w
= [a01 (1 a22 ) + a21 a02 ]
jDj
w
= [A01 ]
jDj

w
p2 = [a02 (1 a11 ) + a12 a01 ]
jDj
w
= [A02 ]
jDj

where
1 a11 a21
jDj =
a12 1 a22

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8 Linear Programming Formulation

8.1 Primal: Cost Minimization

To get the speci…ed …nal demands, i.e., d1 and d2 ; we have to choose gross output x1 and

x2 in such a manner that the total labour cost is minimized; i.e.,

M in W = w (a01 x1 + a02 x2 )

subject to,

x1 a11 x1 + a12 x2 + d1

) (1 a11 ) x1 a12 x2 d1

x2 a21 x1 + a22 x2 + d2

) a21 x1 (1 a22 ) x2 d2

x1 0; x2 0

8.2 Dual: Revenue Maximization

M ax R = p1 c1 + p2 c2

s.t.,

p1 a11 p1 + a21 p2 + a01 w

) (1 a11 ) p1 a21 p2 a01 w

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Similarly,

p2 = a12 p1 + a22 p2 + a02 w

) a12 p1 + (1 a22 ) p2 a02 w

p1 0; p2 0

8.3 Primal = Dual

At the optimum point,

W = R

) N N IF C = N N PM P

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Problems
1. (M odel Question; 1A) In a two industry economy, it is known that industry I uses

20 % of its own product and 60% of commodity II to produce a rupee’s worth of

commodity I; industry II uses none of its own product but uses 50% of commodity

I to produce a rupee’s worth of commodity II; then open sector demands 100 crores

of commodity I and 200 crores of commodity II. Write down the input coe¢ cient

matrix and the speci…c input output matrix equation for this economy.
2 3 2 3
6 0:2 0:5 7 6 100 7
Answer: A = 6
4
7; & d = 6
5 4 crore7
5
0:6 0:0 200

(I A) x = d

2 32 3
6 0:8 0:5 7 6 x1 7
) 6
4
76
54
7
5
0:6 1:0 x2
2 3
6 100 7
= 6
4
7
5
200

2. (M odel Question; 1A) In a three sector economy, the input coe¢ cient matrix and

…nal demand vector are as below:

2 3 2 3
6 0:3 0:2 0:3 7 6 500 7
6 7 6 7
6 7 6 7
A=6 6 0:1 0:3 0:4 77 ; & F = 6 700
6
7 : Find the sectoral output X1 ; X2 and X3
7
6 7 6 7
4 5 4 5
0:2 0:3 0:0 600
using Cramer’s rule.

Answer: We know,

(I A) x = F

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2 32 3 2 3
6 0:7 0:2 0:3 7 6 x1 7 6 500 7
6 76 7 6 7
6 76 7 6 7
)6
6 0:1 0:7 0:4 7 6 x 7 x = 6 700 7
76 2 7 6 7
6 76 7 6 7
4 54 5 4 5
0:2 0:3 1:0 x3 600

Hence,

500 0:2 0:3

700 0:7 0:4

600 0:3 1:0 667

x1 = = ;
319
0:7 0:2 0:3

0:1 0:7 0:4

0:2 0:3 1:0

0:7 500 0:3

0:1 700 0:4

0:2 600 1:0 724

x2 = =
319
0:7 0:2 0:3

0:1 0:7 0:4

0:2 0:3 1:0

0:7 0:2 500

0:1 0:7 700

0:2 0:3 600 542

x3 = =
319
0:7 0:2 0:3

0:1 0:7 0:4

0:2 0:3 1:0

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3. (CU; 2011) De…ne an Input-Output matrix under the Leontief Static Open System

in a two-commodity framework.

4. (CU; 2011; 1A) Consider a two sector

2 open static
3 Leontief system where the inter-
6 0:4 0:5 7
industry input coe¢ cient matrix is 6
4
7 : Does the system satisfy Hawkins-
5
0:3 0:2
Simon conditions? Interpret the condition in simple economic terms.

Answer: It is given that 2 3

6 0:4 0:5 7
A=6
4
7
5
0:3 0:2
2 3
6 0:6 0:5 7
) (I A) = 6
4
7
5
0:3 0:8

Hence, jB1 j = 0:6 > 0 ) The amount of the 1st commodity used in the production

of a rupee’s worth of the …rst commodity to be less than one rupee; and jB2 j =

0:48 0:15 = 0:33 > 0 ) The amount of the 1st commodity used as direct and

indirect inputs in producing of a rupee’s worth of the …rst commodity itself, must

be less than one rupee.

) HS condition is satis…ed.

5. (CU; 2012; 1A) In a two industry economy, it is known that industry 1 uses 10 % of

its own product and 60% of commodity 2 to produce a rupee’s worth of commodity

1; industry 2 uses none of its own product but uses 50% of commodity 1 to pro-

duce a rupee’s worth of commodity 2; then open sector demands 100 lakh rupees of

commodity 1 and 200 lakh rupees of commodity 2.

(i) Write down the input coe¢ cient matrix and the speci…c input output matrix

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 Leontief Input - Output Analysis/ DR. SHIRSENDU MUKHERJEE

equation.
2 3
6 0:1 0:5 7
Answer: The inter-industry input coe¢ cient matrix is A = 6
4
7 ; and the
5
0:6 0:0
2 3
6 1 7
…nal demand vector is d = 6
4 crore7
5
2

(I A) x = d

2 32 3 2 3
6 0:9 0:5 7 6 x1 7 6 1 7
)6
4
76
54
7=6 7
5 4 5
0:6 1:0 x2 2

Hence,
1 0:5

2 1:0 2:0
x1 = = = 3: 333 3
0:6
0:9 0:5

0:6 1:0

0:9 1

0:6 2 2: 4
x2 = = = 4:0
0:6
0:9 0:5

0:6 1:0

(ii) Derive the rupee amount of the primary input used in producing a rupee’s

worth each of commodity 1 and commodity 2.

Answer:

x0 = a01 (3: 333 3) + a02 (4:0)

6. (CU; 2013; 2015; 1A) Given the input-coe¢ cient matrix of an input-output model

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2 3 2 3
6 0:3 0:2 7 6 50 7
and the …nal consumption demand vector: A = 6 4
7; C = 6
5 4
7 : Find
5
0:2 0:2 50
the optimum output levels of the two goods. Suppose that 0:2 and 0:1 are labour

coe¢ cients of the two goods respectively. If L = 100, will there be unemployment

in the economy?

Answer:

(I A) x = d
2 32 3 2 3
6 0:7 0:2 7 6 x1 7 6 50 7
)6
4
76
54
7=6
5 4
7
5
0:2 0:8 x2 50

Hence,

50 0:2

50 0:8 50
x1 = = ;
0:52
0:7 0:2

0:2 0:8

0:7 50

0:2 50 45
x2 = =
0:52
0:7 0:2

0:2 0:8

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Hence, required Labour input (x0 ) is

x0 = a01 x1 + a02 x2
50 45
= 0:2 + 0:1
0:52 0:52
= 27: 885 ' 28 < 100

Hence, there will be unemployment in the economy.

7. (CU; 2014; 1A) In a two industry economy, it is known that industry I uses 20% of

its own product and 50% of commodity II to produce a rupee’s worth of commodity

I; Industry II uses none of its own product, but uses 60% of commodity II. The open

sector demands 1000 lakh rupees of commodity I and 2000 lakh rupees of commodity

II.

(a) Set up the input-coe¢ cient matrix and the speci…c input-output matrix equation

for the economy.

2 3 2 3
6 0:2 0:0 7 6 10 7
Answer: A = 6
4
7; & d = 6
5 4 crore7;
5
0:5 0:6 20

(I A) x = d

(b) Check whether the given data in the problem satisfy the Hawkin-Simon condition

or not.
2 3
6 0:8 0:0 7
Answer: Let, (I A) = 6
4
7 = [B]
5
0:5 0:4

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0:8 0:0
Hence, jB1 j = 0:8 > 0; jB2 j = = 0:32 > 0
0:5 0:4

8. [CU; 2012; 3A] Find out the equilibrium prices for the following two sector static

Leontief open input-output model:

0:3 0:3
; (a01 ; a02 ) = (4; 6) ; w = 10:
0:2 0:5

1 a11 a12 0:7 0:3

Answer: Here, jI Aj = jDj = = = 0:29
a21 1 a22 0:2 0:5
Again,

p1 = a11 p1 + a21 p2 + a01 w

Similarly,

p2 = a12 p1 + a22 p2 + a02 w

Solving by using Cramer’s Rule, we get:

a01 (1 a22 ) a21 a02

p1 = :w + :w
jDj jDj
w
= [a01 (1 a22 ) + a21 a02 ]
jDj
10
= (2 + 1:2) = 110: 34
0:29

w
p2 = [a02 (1 a11 ) + a12 a01 ]
jDj
10
= (4:2 + 1:2) = 186: 21
0:29

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1 a11 a12
where jDj =
a21 1 a22

9. [CU; 2015; 3A] The following table gives the input-output coe¢ cients for a two sector

economy consisting of agriculture and manufacturing industry.

Industry !;Input # A M

Input to A 0:10 0:50

Input to M 0:20 0:25

The …nal demand for the two industries are 300 and 100 units respectively.

(a) Find the gross output of the two industries.

Answer:
300 0:50

100 0:75 275 11

x1 = = =
575 23
0:90 0:50

0:20 0:75

0:90 300

0:20 100 150 6

x2 = = =
575 23
0:90 0:50

0:20 0:75

(b) If the input coe¢ cients for labour for the two industries are respectively 0:5,

and 0:6, …nd the total units of labour required.

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 Leontief Input - Output Analysis/ DR. SHIRSENDU MUKHERJEE

Answer: Required Labour input (x0 ) is

x0 = a01 x1 + a02 x2
11 6
= 0:5 + 0:6
23 23
= 0:395 65

10. [CU; 2012; 2014; 3A] Consider the following Leontief System where the input-output

coe¢ cient matrix is given by:

2 3
6 0:1 0:3 0:2 7
6 7
6 7
6 0:4 0:1 0:3 7
6 7
6 7
4 5
0:3 0:5 0:2

(a) Check whether the system satis…es the Hawkins-Simon conditions.

0:9 0:3 0:2

0:9 0:3
Answer: jI Aj = 0:4 0:9 0:3 = 0:296 > 0; 0:9 > 0; =
0:4 0:9
0:3 0:5 0:8
0:69 > 0

(b) Give the economic interpretation of the Hawkins-Simon conditions.

11. [CU; 2012; 3A] What is the consumption possibility locus? Determine the c.p.l. in

a two sector static Leontief open input- output model.

12. [CU; 2016; 3A] Consider the following I-O matrix:

Agriculture M anuf acturing Services

Agriculture 0:2 0:3 0:2

.
M anuf acturing 0:4 0:1 0:2

Services 0:1 0:3 0:2

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The …nal demand for agriculture, manufacturing, and service sectors are 10:1; 5:3; 5:6

respectively. Find out the output produced in the three sectors.

Answer:

(I A) x = d
2 3 2 3
6 0:8 0:3 0:2 7 x1 6 10:1 7
6 7 6 7
6 7 6 7
)6
6 0:4 0:9 7
0:2 7 x2 = 6 5:3
6
7
7
6 7 6 7
4 5 4 5
0:1 0:3 0:8 x3 5:6

Hence,

10:1 0:3 0:2 0:8 10:1 0:2

5:3 0:9 0:2 0:4 5:3 0:2

5:6 0:3 0:8 9: 6 0:1 5:6 0:8 8: 064

x1 = = = 25; x2 = = = 21;
0:384 0:384
0:8 0:3 0:2 0:8 0:3 0:2

0:4 0:9 0:2 0:4 0:9 0:2

0:1 0:3 0:8 0:1 0:3 0:8

0:8 0:3 10:1

0:4 0:9 5:3

0:1 0:3 5:6 6: 912

x3 = = = 18:
0:384
0:8 0:3 0:2

0:4 0:9 0:2

0:1 0:3 0:8

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