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Leontief Input - Output Model

The Leontief Input-Output Model analyzes the interdependencies between different industries or sectors of an economy. It assumes that each industry uses a fixed ratio of inputs to produce its output and that a change in inputs or outputs would result in a proportional change across the industry. The model can be "open" or "closed" - an open model includes external demand and primary inputs from outside the system of industries being analyzed, while a closed model only considers demand and inputs within the system of industries.

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EKANSH DANGAYACH 20212619
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265 views7 pages

Leontief Input - Output Model

The Leontief Input-Output Model analyzes the interdependencies between different industries or sectors of an economy. It assumes that each industry uses a fixed ratio of inputs to produce its output and that a change in inputs or outputs would result in a proportional change across the industry. The model can be "open" or "closed" - an open model includes external demand and primary inputs from outside the system of industries being analyzed, while a closed model only considers demand and inputs within the system of industries.

Uploaded by

EKANSH DANGAYACH 20212619
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Leontief Input- Output Model

Presented by- Ekansh Dangayach


(20212619)
Background
• Professor Wassily Leontief, a Nobel Prize Winner , deals with the
particular question: “What level of output should each of the n industries
in an economy produce, in order that it will just be sufficient to satisfy the
total demand for that product?”
• In turns, the output of many other industries will enter into the steel
industry as inputs and consequently the “correct” levels of the other
products will in turn depend partly upon the input requirements of the
steel industry.
• Although the interdependence of the various industries Is emphasized the
correct output levels envisaged are those which satisfy technical input
output relationship rather than market equilibrium conditions.
Structure of an Input output model
• Since an input- output model normally encompasses a large number
of industries, its framework is quite complicated.
• To simply the problems, following assumption are as a rule adopted ;
1. Each industry produces only one homogeneous commodity.
2. Each industry uses a fixed input ratio(or factor
combination )
3. production in every industry is subject to constant returns to
scale, so that a k-fold change in every input will result in an exactly k-
fold change in the output.
• From this assumption we see that, in order to produce each unit of
the jth commodity, the input need for the jth commodity must be a
fixed amount, which we shall denote by aij. Specifically, the
production of each unit of the jth commodity will require aij(amount)
of the first commodity, a2j of the second commodity …….and anj of
the nth commodity.
• The first subscript refers to the input, and the second to the output:
aij indicates how much of the ith commodity is used for the
production of each unit of the jth commodity.
Types of Leontief input output model
1. Open Model
2. Closed model
Open Model

Labor Transport ion

Food External Demand


The open Model
• If the some industries constitute the entirely of the economy, then all their
products would be for the sole purpose meeting the input demand of the
same n industries as against the final demand.
• At the same time, all the inputs used in the economy would be in the nature
of intermediate inputs as against primary inputs. To allow for the presence
of final demand and primary inputs, we must include in the model an open
sector outside of the n-industry networks.
• Each column sum represents the partial input cost incurred in producing a
dollar’s worth of some commodity.
• If the sum is greater than or equal to $1, therefore, production will not be
economically justifiable.

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