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Mat1302 Input Output Model Exercises Solutions

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Mat1302 Input Output Model Exercises Solutions

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Med Abdelkebir
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© © All Rights Reserved
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University of Ottawa – MAT 1302

Leontief Input-Output Model Exercises – Solutions


Professor: Alistair Savage

Question 1. Suppose an economy has three sectors. The consumption matrix and final demand vector are
given by    
.4 .6 0 72
C = .4 .3 .2 , d~ = 150 .
.1 0 .4 58
Using the Leontief Input-Output Model, determine the production levels necessary to satisfy the final de-
mand.

~ or equivalently
Solution: We need to solve ~x = C~x + d,
~
(I − C)~x = d.

We row reduce the augmented matrix:


  10R1  
h i .6 −.6 0 72 10R2 6 −6 0 720
10R3
I − C d~ =  −.4 .7 −.2 150  −−−→  −4 7 −2 1500 
−.1 0 .6 58 −1 0 6 580
     
1 1 −1 0 120 4R1 +R2 1 −1 0 120 1 1 −1 0 120
6 R1 R1 +R3 3 R 2
−− −→  −4 7 −2 1500  −−− −−→  0 3 −2 1980  −− −→  0 1 −2/3 660 
−1 0 6 580 0 −1 6 700 0 −1 6 700
    23 R3 +R1  
R2 +R1 1 0 −2/3 780 3
R3
1 0 −2/3 780 2
R +R
1 0 0 950
R2 +R3 3 2
−−− −−→  0 1 −2/3 660  −16 −−→  0 1 −2/3 660  −− 3
−−−−→  0 1 0 830 
0 0 16/3 1360 0 0 1 255 0 0 1 255
Thus the production level necessary to meet the final demand is
 
950
~x = 830 .
255

Question 2. Suppose that an economy has two sectors, Mining and Electricity. For each unit of output,
Mining requires 0.4 units of its own production and 0.2 units of Electricity. Moreover, for each unit of output,
Electricity requires 0.2 units of Mining and 0.6 units of its own production.
(a) Determine the consumption matrix C for this economy.
 
0.4 0.2
Solution: C = .
0.2 0.6

(b) Find the inverse of (I − C).

Solution:    
0.6 −0.2 6/10 −2/10
I −C = = =⇒
−0.2 0.4 −2/10 4/10
     
−1 1 4/10 2/10 4/10 2/10 2 1
(I − C) = 6 4 −2 −2 = (5) =
( 10 )( 10 ) − ( 10 )( 10 ) 2/10 6/10 2/10 6/10 1 3
(c) Using the Leontief Model, determine the production levels from each sector that are necessary to
satisfy a final demand of 20 units from Mining and 10 units from Electricity. Use the inverse of
(I − C) in your calculation (that is, use the inverse matrix method to solve this problem).
 
~ 20
Solution: Let d = . The Leontief Model states that the product vector ~x must satisfy
10
C~x + d~ = ~x, or equivalently
    
−1 ~ 2 1 20 50
~x = (I − C) d = = .
1 3 10 50
 
50
Thus, the production level needed to meet the demand d~ is , or 50 units from Mining and 50
50
units from Electricity.

Question 3. An economy has two sectors: Electricity and Services. For each unit of output, Electricity
requires 0.5 units from its own sector and 0.4 units from Services. Meanwhile, Services requires 0.5 units
from Electricity and 0.2 units from its own sector to produce one unit of Services.
(a) Determine the consumption matrix C.
 
0.5 0.5
Solution: C = .
0.4 0.2

(b) State the Leontief input-output equation relating C to the production vector ~x and final demand
~
vector d.
~
Solution: ~x = C~x + d.

(c) Use an inverse matrix to determine the production vector  necessary


 to satisfy a final demand of 1000
1000
units of Electricity and 2000 units of Services, i.e. d~ = .
2000

~
Solution: We need to solve (I − C)~x = d.
 
0.5 −0.5
I −C = ⇒ det(I − C) = (0.5)(0.8) − (−0.5)(−0.4) = 0.2,
−0.4 0.8
     
1 0.8 0.5 0.8 0.5 4 2.5
(I − C)−1 = =5 =
0.2 0.4 0.5 0.4 0.5 2 2.5
Therefore,     
−1 ~ 4 2.5 1000 9000
~x = (I − C) d = = .
2 2.5 2000 7000

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