19) Given a directed route G :

V1 V2

V3 V4
Fig. 1.25
Find its route and path matrices.
20) Using the substitution scheme,
1 2 3 4 5 6 7 8 9 10 11 12 13
↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕
A B C D E F G H I J K L M

14 15 16 17 18 19 20 21 22 23 24 25 26
↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕ ↕
N O P Q R S T U V W X Y Z
3 1
and the matrix A =  
2 1 
(i) Code the message : CONSUMER and
(ii) Decode the message : 68, 48, 81, 60, 61, 42, 28, 27.

1.5 INPUT - OUTPUT ANALYSIS

Consider a simple economic model consisting of two industries
A1 and A2 , where each produces only one type of product. Assume
that each industry consumes part of its own output and rest from
the other industry for its operation. The industries are thus
interdependent. Further assume that whatever is produced is
consumed. That is the total output of each industry must be such as
to meet its own demand, the demand of the other industry and the
external demand that is the final demand.
Our aim is to determine the output levels of each of the two
industries in order to meet a change in final demand, based on a
knowledge of the current outputs of the two industries, of course
under the assumption that the structure of the economy does not
change.
54
 Let a i j be the rupee value of the output of Ai consumed by
Aj, i, j = 1, 2
Let x 1 and x 2 be the rupee value of the current outputs of A1
and A2 respectively.
Let d1 and d2 be the rupee value of the final demands for the
outputs of A1 and A2 respectively.
These assumptions lead us to frame the two equations
a11+ a12 + d1 = x 1
a21 + a22 + d2 = x 2 } ----------(1)

ai j
Let bij = x , i, j = 1, 2
j
That is
a11 a a a
b11 = , b12 = 12 , b21 = 21 , b22 = 22 ,
x1 x2 x1 x2
Then equations (1) take the form
b11 x 1 + b12 x 2 + d1 = x 1
b21 x 1 + b22 x 2 + d2 = x 2
These can be rearranged as
(1−b11) x 1−b12 x 2 = d1
−b21 x 1 + (1−b22) x 2 = d2
This takes the matrix form
1−b11 −b12   x1   d1 
    =  
 −b21 1−b22  x2   d2 
That is (I − B) X = D
 b11 b12  x  d 
Where B =   , X =  1  and D =  1 
 b21 b22   x2   d2 
Solving this
X = (I − B)-1 D.
The matrix B is known as the technology matrix.
55
Hawkins - Simon conditions ensure the viability of the system.
If B is the technology matrix then Hawkins − Simon conditions are
(i) the main diagonal elements in I − B must be positive and
(ii) |I − B| must be positive.
Example 46
The data below are about an economy of two industries
P and Q. The values are in lakhs of rupees.
Producer User Final Demand Total Output
P Q
P 16 12 12 40
Q 12 8 4 24
Find the technology matrix and test whether the system
is viable as per Hawkins - Simon conditions.
Solution :
With the usual notation we have,
a11 =16, a12 = 12, x 1 = 40
a21 =12, a22 = 8, x 2 = 24
Now
a11 a
b11 = = 16 = 2 , b12 = 12 = 12 = 1 ,
x1 40 5 x2 24 2
a21 a
b21 = = 12 = 3 , b22 = 22 = 8 = 1 .
x1 40 10 x2 24 3
∴ The technology matrix is
 25 1

B =  3 
2
1
 10 3 
1   25 1
  35 − 12 
−  3  =  3 
0 2
I-B=   2 
0 1   10
1
3  −
 10 3 
The main diagonal elements in I − B viz., 3 and 2 are
5 3
positive. Also
56
 3
5 − 12
|I − B| = = 1 . |I − B| is positive.
− 103 2
3
4
∴ The two Hawkins - Simon conditions are satisfied. Hence
the system is viable.
Example 47
In an economy there are two industries P and Q and the
following table gives the supply and demand positions in crores
of rupees.
Producer User Final Demand Total Output
P Q
P 10 25 15 50
Q 20 30 10 60
Determine the outputs when the final demand changes
to 35 for P and 42 for Q.
Solution :
With the usual notation we have,
a11 = 10,a12 = 25 x 1 = 50
a21 = 20,a22 = 30 x 2 = 60
Now,
a a
b11 = 11 = 10 = 1 , b12 = 12 = 25 = 5 ,
x1 50 5 x2 60 12
a21 a
b21 = = 20 = 2 , b22 = 22 = 30 = 1 .
x1 50 5 x2 60 2
∴ The technology matrix is
 15 5

B =  2 
12
1
5 2 
1   15 125   45 − 125 
−  2 1  =  2 
0
I-B =   1 
0 1  5 2   5 − 2 
 45 − 12 
5
|I - B| =  2 
1  = 30
7
− 5 2 
57
  12 5
 30  12 5
  25 
(I - B)-1 =
1
7
 2 12
4
 =  2 12
4
 = 1 15 2 
30
5 5  7 5 5  7 12 24 
Now,
X = (I−B) −1 D
15 25 
2   35 
15 25   5   150 
= 1  =  2    =  
7 12 24   42    
12 24   6   204 
The output of the industry P should be Rs.150 crores and
that of Q should be Rs. 204 crores.
EXERCISE 1.5
1) The technology matrix of an economic system of two industries
 12 1

is  2  . Test whether the system is viable as per Hawkins
4
2
5 3 
Simon conditions.
2) The technology matrix of an economic system of two industries
 35 9

is  1  . Test whether the system is viable as per Hawkins
10
4
5 5 
Simon conditions.
3) The technology matrix of an economic system of two industries
 25 1

is  7  . Find the output levels when the final demand
10
3
 10 5 
changes to 34 and 51 units.
4) The data below are about an economy of two industries P and
Q. The values are in millions of rupees.
Producer User Final Demand Total Output
P Q
P 14 6 8 28
Q 7 18 11 36
Determine the outputs if the final demand changes to 20 for P
and 30 for Q.
58