Input-Output Analysis with Leontief Models.
Input-output analysis is useful for modelling economies. The Leontief models are economic models that show the relationships betweens different industries in an economy. The closed Leontief model and the open Leontief model represent different types of economies. It is possible to tell whether an economy is productive or non-productive by looking at the Leontief models. It is also possible to find production levels that will meet the demands of all sectors inside and outside of that economy.
I. Introduction.
Input-output analysis is a method used to analyze the relationships between sectors in an economy. It is said that these sectors are dependent on the other sectors in the economy because in order to produce something, each sector needs to consume some kind of output from the other sectors. An individual sector of the economy will often need to consume some of its own output, as well. For example, the gasoline refining industry will inevitably need to use some of that gasoline in order to produce more. Refineries will also require equipment and crude oil. Without having access to these items, the industry would be able to produce nothing.
This type of analysis was first developed by Wassily Leontief in the 1930's. In the 1940's, Leontief began compiling his input-output matrices that eventually became known simply as Leontief matrices. The 1947 table consisted of 42 major sectors of the economy and described the interdependence between them. Since the 1940's, many new input-output tables have been calculated. Each matrix models the flow of goods and services in the economy at a certain point in time.
Leontief developed his models in order to find a way that economies can be modelled using empirical data. One of his goals was to find a way to use real facts to model economies, rather than making theoretical assumptions to decide what an economy will do.