materials and by determining how production processes for less available materials might be improved. c. Interindustry Effects An analysis of the effects an investment might have on the structury of the economy can best be accomplished by using an input-output (I/O) model of the economy to test the industry effect. Basically, this model answers the following question: What will the effects on other industries be? To illustrate how this question can be answered the automobile industry can serve as an example. The I/O model specifies the production technology of the automobile industry. It will show that automobiles require certain inputs from the steel industry, the plastics industry, the rubber industry and so much labor. These amounts are specified. Therefore, an increase in demand for cars will create a derived demand for products from other industries. However, these other industries also require inputs for which the demand will now be increased. The final result of the model specifies the increase in output of all the other industries which are caused by the purchase of additional cars. Table 38 gives a hypothetical I/O model of the economy. TABLE 38 I/O MODEL OF ECONOMY Purchasing Sectors The values a,, a2.. .aj 6 are the technical coefficents of the matrix. The model shows that the auto industry sells a, 3 to industry X, a14 to industry Y, a15 to itself. The government sector represents final demand from which all other demands are derived. These coefficients actually represent the production technology. In order for the auto industry to produce one unit for the government, it must purchase a4 units for industry X, a8 units for industry Y, aj 2 units for industry Z, and ai 6 units for itself. This model also shows how the industrial sectors interact with one another. The increase in final demand for autos will increase demand for the output of other industries, which, if they are to product more, will need more autos. This linear system can be solved mathematically and the results will specify the outputs of various industries for a given level of final demand. A similar analysis can be used to calculate the interindustry effects of a change in the source of power. The model can now specify how much power is sold from each of the energy-producing
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