Linear Algebra › Section B · Matrix algebra › Topic B.6
The Leontief input-output model
To make cars, an economy needs steel; to make steel, it needs electricity; to make electricity, it needs steel again. The Leontief model untangles this web with one matrix equation and tells planners how much every industry must produce.
In this topic
- Industries feed each other
- The ingredients
- Intermediate demand is Cx
- The Leontief equation
- When a sensible solution exists
- Worked example: a two-sector economy
- Rounds of demand
- Worked example: adding the rounds
- Reading the inverse
- Common mistakes to avoid
- Key takeaways
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