INPUT-OUTPUT ANALYSYS

          the concept of input output analysis was first developed by Quesney in 18^th century in the name of Tableau economique.In modern times, American economist pro: ww.Leontief has developed input-output analysis to give a practical shape to the general equilibrium analysis of Walras. Leontief explained input-output analysis in his famous work “structure of the American Economy” in which he explained inter relationship and interdependence of various sectors of the economy. Input output analysis is a very helpful tool for economic forecasting in developed countries and economic planning in the developing countries. (Economic forecasting is the activity of estimating the quantity that the consumers may purchase In future, making predictions for capacity requirements, price decisions, entering in to new industry. Input-output analysis is a very helpful tool for analyzing how an industry undertakes production by using output of other industries and the out-put of the given industry is used-up in other industries and sectors. So the various industries are mutually interdependent. Which means out-put of an industry is input of others Eg: wheat and Horlicks or steel and construction. So input out-put analysis is also known inter industry analysis.

FEATURES OF INPUT-OUTPUT ANALYSIS

input-output analysis is concerned with only production:- it does not consider what determines final demand for goods and services, thus the theory of consumer’s demand does not have any place in input-output analysis. It explains the technological problems; it describes the use of the amount of various inputs in industries and possible output of them.

Input-output analysis is based upon only empirical facts: - Estimates of quantities of the various inputs and outputs of various industries are made on the basis of the empirical facts or data.

Input-output analysis is based on the concept of general equilibrium:- it gives the practical shape to the theoretical framework of general equilibrium analysis.(general equilibrium analysis seeks to explain the behavior of supply, demand and price in whole economy with several interacting markets by seeking to prove that a set of price exists that may result in an overall equilibrium.

ASSUMPTIONS OF THE THEORY

It assumed that available resources, the demand for final products and price of all inputs and outputs are given and remain constant, the main purpose is to analyze the relationship between the changes in the physical outputs.

It is assumed that the technical coefficients of production ie:- input ratios or factors of production to produce a given output of various products are completely fixed. Possibilities of technical substitution among various factors to produce a product or changes in the techniques of production are not considered in this analysis.

it is assumed that the constant returns to scale prevails in the economy:- this implies that a fixed quantities of inputs are presumed. Thus one percent change in input would result one percent change in output.

It is assumed that the demand for final products is enough to keep the system working at its full production capacity which means there are no inputs remains unutilized or underutilized.

SETTING UP OF INPUT-OUTPUT ANALYSIS

To setup input-output analysis we have to divide economy in to manageable number of sectors each sector is assumed to produce only one product and each sector contains several industries and producing closely related products.

After dividing the system in to sectors, next step is to frame number of equations which will establish relation between various inputs of each sector to the outputs of its product and number of equations also framed which will relate the output of one sector to the other sector which uses the products of that sector as inputs.

Establishment of necessary equations and technical coefficients of production are taken on the basis of empirically obtained data. In this way the final output for consumption demand or for making addition to the capital stock is determined.

There is constant returns prevails in the economy so there will be linear relationship between inputs and output of any product.

There will be as many numbers of equations as there are outputs, therefore unique mathematical solution can be obtained from a given set of simultaneous equations.

Input output table (transaction matrix)

Input-output table represents the flow of a given in to various industries and final demand and the requirements of various inputs for that output. Input –output table is also call as transaction matrix.

Here output X1 of industry 1 follows in to its own output X1and also into the out of other industries such as X2,X3….Xn as input and the remaining parts of outputs may be used to meet the final demand D1 Similarly X11,X21,Xnn also used in the same way.(each output of one industry will be used as input for other industries or it may be directed to meet the final demand.