Input Output Analysis

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The attached solution describes the main features, assumptions, applications and limitations of the Leontief's Input-Output model.

Input-Output Analysis
Input-Output Analysis is a technique for analyzing inter-industry relations. It is an analysis of the interdependence of the economy as a whole and studies the pattern of movements of intermediate products from one industry to other industries and to the consumers. Input-Output analysis then considers general economic equilibrium by a study of the interdependence of the production plans of industries in the economy. Wassily Leontief (1906-1999) developed this type of analysis and took the Nobel Prize in Economics for his development of this model.
Input-output analysis is intended to study the level of output of each industry with the existing technology so that the total output goal for consumer and industrial use get fully satisfied. That is, it studies the level of output of each producing sector in an economy that can bring about equilibrium for its product in the economy as a whole.
Main features of Input-Output analysis
Since outputs of one industry are the inputs of another industry and vice versa, ultimately the mutual relationship must lead to equilibrium between supply and demand in the economy consisting of a number of industries. It can be stated that in an input-output analysis, in a state of perfect equilibrium, the monetary value of the total output of an economy must be equal to the monetary value of all the inputs of all the industries taken together. Therefore main features of input-output analysis are:
1) It is applied to an economy that is in equilibrium.
2) It bears no relationship with demand analysis. It considers ...