Linear Economic Models Finite Linear Games

Applications of Linear Systems

Michael Freeze
(based on materials prepared by D. Poole)

MAT 335. Linear Algebra and Matrices UNC Wilmington

Spring 2012

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Outline

1 Linear Economic Models

Leontief Closed Model Establishing Value of Services

2 Finite Linear Games

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Wassily Leontief

Wassily Leontief (1906-1999) conducted a monumental

input-output analysis of the United States economy in the 1930s.

He was awarded the Nobel Prize in Economics in 1973.

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Leontief Closed Model

Assumptions:
Each of several industries in a region produces a single

commodity.
Each industry purchases commodities from other industries,

including itself, in order to generate output.

No commodities are purchased from outside the region, and

no output is sold outside the region.

The production of each industry exactly equals its

consumption. What is the equilibrium production of each industry?

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Service-Electricity-Oil Closed Economy

Consumer

Service Electricity Oil

Service 1/4 1/4 1/2

Producer Electricity 1/3 1/3 1/3

Oil 1/2 1/4 1/4

How much should each industry produce in order to meet demand for their commodities?

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Model Representation as Linear System

Let x1 , x2 , x3 denote the annual output of the service, electricity, and oil industries respectively, in millions of dollars. The equilibrium assumption that production of each industry exactly equals its consumption yields the following system of linear equations. 1 x1 + 4 1 x1 + 4 1 x1 + 2 1 x2 + 3 1 x2 + 3 1 x2 + 3 1 x3 = x1 2 1 x3 = x2 4 1 x3 = x3 4

(Service) (Electricity) (Oil)

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Representation as Homogeneous Linear System

The linear system just obtained is equivalent to the following homogeneous system. 3 1 1 x1 + x2 + x3 = 0 4 3 2 1 2 1 x1 x2 + x3 = 0 4 3 4 1 1 3 x1 + x2 x3 = 0 2 3 4

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Determination of Equilibrium Production

We nd the reduced row echelon form of the augmented matrix for the system. 3 1 1 4 1 0 1 0 0 3 2 1 3 2 1 0 4 4 3 0 1 4 0 1 1 3 0 0 0 0 4 0 2 3 We see that the relative production of the service, electricity, and oil industries needs to be in ratio x1 : x2 : x3 = 4 : 3 : 4 for the economy to be in equilibrium (that is, for production to meet demand).

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Carpenter, Plumber, and Electrician

A carpenter, a plumber, and an electrician enter into a

cooperative agreement in which each of them agrees to work for themselves and the other two for a total of 10 hours per week.
For tax purposes, each person must establish a value for their

services.
They agree to do this so that the total amount paid out by

each person equals the amount they receive.

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Leontief Closed Model Establishing Value of Services

Carpenter-Plumber-Electrician Work Schedule

Consumer

Carpenter Plumber Electrician

Carpenter 2 4 4

Producer Plumber 1 5 4

Electrician 5 1 4

What hourly rate should each person charge so that they each come out even, with the rates all being whole numbers between $30 and $60 per hour?

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Outline

1 Linear Economic Models

Leontief Closed Model Establishing Value of Services

2 Finite Linear Games

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Lights Out

A number of popular electronic puzzles are based on the

problem of using a sequence of regular moves to transform a system into a desired nal state.
Some of these puzzles (such as Lights Out or Merlin) are in

the form of a grid of lighted buttons which must be transformed to unlit state. Pressing the buttons will switch the lit state for buttons immediately adjacent to the pressed one.

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Example

A canvas implementation of lights out: http://people.uncw.edu/freezem/ mat-335-003-2012-spring/resources/lights_off_canvas/

Michael Freeze

Applications of Linear Systems

Linear Economic Models Finite Linear Games

Questions

1 2 3 4

Does the order in which buttons are pressed matter? Must buttons be pressed more than once? Are all lit patterns possible? How can we use linear algebra to answer these questions?

Michael Freeze

Applications of Linear Systems