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.
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