Write a note on input-output analysis. Or Discuss input-output analysis in detail.

Write a note on input-output analysis. Or Discuss input-output analysis in detail.

Ans. Input-output analysis is a technique which is used to study the production structure of an economy, considering the mutual interdependence of the various production sectors. According to Lange, “the analysis of inter industry relations, usually referred to as input-output analysis, serves the

purpose of establishing the quantitative relations between various branches of the national economy which result from the fact that the output of one branch is the source of input in another branch”.

Hence, the input-output analysis seeks to analyze inter-industry relationship in order to understand the inter dependences and complexities of the system and to obtain the conditions for maintaining balance between demand and supply of each industry. The input-output analysis is also called inter-industry

flow analysis. In general, there are two ways in which the output of each interacting industry is consumed

(i)  Intermediate demand, in which output of an industry is used as input-

(a) By producing industry itself

(b) By other industries in the economy.

(ii) Final demand, which consists of consumption demand by households, government and export sector.

In an economy, input-output analysis gives the level of output of each

producing sector in such a way that its output equals the total of the intermediate

demands and the final demand of that sector. In this way, it provides an

internally consistent arrangement of production of all the interacting industries

in the economy.

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