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Leontief Input-Output Model: Solving for Consumer Demand

Learn how to calculate the amount of goods and services needed to meet consumer demand using the Leontief Input-Output Model. Understand the matrix equations and relationship between input and output quantities in an economy. Explore examples for a clear understanding.

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Leontief Input-Output Model: Solving for Consumer Demand

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  1. Section 2.7 Leontief Input-Output Model

  2. Input – Output Matrix Output (amount produced) A B Input (amount used in production) A B a units of A are required to produce 1 unit of A. b units of A are required to produce 1 unit of B. c units of B are required to produce 1 unit of A. d units of B are required to produce 1 unit of B.

  3. Leontief Input – Output Model In a Leontief input – output model, the matrix equation giving the net output of goods and services needed to satisfy consumer demand is: Consumer Demand Total Output Internal Consumption The solution to the equation is: Which gives the amount of goods and services that must be produced to satisfy consumer demand.

  4. Ex. A simple economy consists of manufacturing (M) and service (S) and has the following input-output model (units are in millions of dollars) : M S M S • Determine the amount of manufactured products consumed for $300 million worth of service. (0.1)(300) = 30 So $30 million

  5. Find the gross output of goods needed to satisfy a consumer demand for $90 million worth of manufactured products and $60 million worth of service. $187.5 million worth of manufactured products and $212.7 million worth of service.

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