An Economic Analysis of Input and Output

A central concept of systems theory is that various elements that comprise a system are linked, and that changes to one part will affect the system as a whole. Input-output analysis applies a systems theory perspective to the study of economies and demonstrates the interdependence of consumers, industries, and other players in an economic system.

Identification

Input-output analysis is an economic model that illustrates the links among industries and consumers, and how changes to one part of this system affects the entire economy.

Illustration

As an example of the interdependence among industries in an economy, consider the oil and steel industries. The oil industry requires machinery made from steel to drill and refine oil, while the steel industry uses oil as energy to run its factories.

History

German economist Wassily Leontieff (1905-1999) developed input-output analysis and later won the Nobel Prize in Economics for his contributions to the field.

Features

Input-Output analysis, by illustrating the links among industries, shows how the goods and services produced by one industry (its output) are inputs for other industries.

Benefits

Input-Output analysis shows the interdependence among industries and consumers in the economy. Consumers and firms depend on each other as buyers of their output and as suppliers of input.

Considerations

Input-output analysis is not difficult in mathematical terms, but requires extensive data because an accurate input-output model requires that the revenues and expenditures of all relevant economic actors be represented.

References

• Input-Output Model Explained

Resources

• Introduction to the Leontieff Input-Output Model