Input-Output Foundations
MODEL LAB · LABORATORY 02
Input–Output
Foundations.
Enter the production architecture of an economy. Learn how industries purchase from one another, how final demand activates output, and why every row and every column tells a different—but reconcilable—economic story.
THE ECONOMY AS A PRODUCTION NETWORK
Every industry
buys and sells.
An input–output table records the monetary value of transactions among industries and between industries and final users during a specified period.
Intermediate transactions
Products used by industries to produce other products. Cell zᵢⱼ is the sale from industry i to industry j.
Final demand
Consumption, investment, government demand and exports that leave the production system.
Value added
Labour income, operating surplus, taxes less subsidies and other primary inputs.
Total output
The complete value produced by an industry—equal from both the sales and cost perspectives.
HOW TO READ THE TABLE
Rows sell.
Columns buy.
| SELLER ↓ / BUYER → | Agriculture | Manufacturing | Final demand | Total output |
|---|---|---|---|---|
| Agriculture | 40 | 25 | 85 | 150 |
| Manufacturing | 30 | 35 | 95 | 160 |
| Value added | 80 | 100 | — | 180 |
| Total input | 150 | 160 | 180 | 310 |
Manufacturing purchases €25 million of agricultural products as intermediate inputs. The row identifies the seller; the column identifies the buyer.
xᵢ = Σⱼzᵢⱼ + fᵢ
ROW IDENTITY · Industry output equals intermediate sales to all industries plus sales to final users.
xⱼ = Σᵢzᵢⱼ + vⱼ
COLUMN IDENTITY · Industry output equals the value of intermediate inputs purchased plus value added.
TRANSACTIONS TABLE LABORATORY
Build a balanced
two-sector economy.
Edit all intermediate transactions and final demand. ECONORIA reconstructs output, derives the value added required by the column accounts, and diagnoses economic feasibility.
| SELLER ↓ / BUYER → | Agriculture | Manufacturing | Final demand | Output |
|---|---|---|---|---|
| Agriculture | 40 | 25 | 85 | 150 |
| Manufacturing | 30 | 35 | 95 | 160 |
| Implied value added | 80 | 100 | — | 180 |
| Total input | 150 | 160 | 180 | 310 |
STRUCTURAL READINGThe table is accounting-consistent and economically feasible. Manufacturing is the larger producer; value added finances final demand at the aggregate level.
THINK LIKE AN IO MODELLER
Four rules for
structural reading.
Never confuse direction
A row shows where an industry’s output goes. A column shows what that industry needs to produce.
Reconcile both accounts
Gross output must equal both total sales and the total cost of intermediate plus primary inputs.
Avoid double counting
GDP is value added, not gross output. Intermediate production appears inside the value of final products.
Inspect feasibility
Negative implied value added signals inconsistent data or an economically impossible transactions structure.
SCIENTIFIC CHECKPOINT
Can you read
cell z₂₁?
In a standard industry-by-industry IO table, what does z₂₁ represent?
Remember: rows sell; columns buy.
