## Tuesday, June 7, 2011

### production function

a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.

### input-output analysis

The input-output analysis tells us that there are industrial interrelationships and inter-dependencies in the economic system as a whole. The inputs of one industry are the outputs of another industry and vice versa, so that ultimately their mutual relationships lead to equilibrium between supply and demand in the economy as a whole Coal is an input for steel industry and steel is an input for coal industry, though both are the outputs of their respective industries.

Main Features:

The input-output analysis is the finest variant of general equilibrium. As such, it has three main elements: First, the input-output analysis concentrates on an economy which is in equilibrium. It is not applicable to partial equilibrium analysis. Secondly, it does not concern itself with the demand analysis. It deals exclusively with technical problems of production. Lastly, it is based on empirical investigation.

importance:
Because the input-output model is fundamentally linear in nature, it lends itself well to rapid computation as well as flexibility in computing the effects of changes in demand.

The structure of the input-output model has been incorporated into national accounting in many developed countries, and as such forms an important part of measures such as GDP.

In addition to studying the structure of national economies, input-output economics has been used to study regional economies within a nation, and as a tool for national and regional economic planning.

### Gini concentration

The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality.
The Gini coefficient is usually defined mathematically based on the Lorenz curve, which plots the proportion of the total income of the population (y axis) that is cumulatively earned by the bottom x% of the population (see diagram). The line at 45 degrees thus represents perfect equality of incomes. The Gini coefficient can then be thought of as the ratio of the area that lies between the line of equality and the Lorenz curve (marked 'A' in the diagram) over the total area under the line of equality (marked 'A' and 'B' in the diagram); i.e., G=A/(A+B).The Gini coefficient can range from 0 to 1; it is sometimes multiplied by 100 to range between 0 and 100. A low Gini coefficient indicates a more equal distribution, with 0 corresponding to complete equality, while higher Gini coefficients indicate more unequal distribution, with 1 corresponding to complete inequality.

### Lorenz curve

the Lorenz curve is a graphical representation of the cumulative distribution function of the empirical probability distribution of wealth; it is a graph showing the proportion of the distribution assumed by the bottom y% of the values.
It is often used to represent income distribution, where it shows for the bottom x% of households, what percentage y% of the total income they have. The percentage of households is plotted on the x-axis, the percentage of income on the y-axis.
It was developed by Max O. Lorenz in 1905 for representing inequality of the wealth distribution.