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CHAPTER 3 Matrices SECTION 5 Input-Output Analysis

In 1973, Wassily Leontief was awarded the Nobel Prize in economics because of the impact that his work, applying matrices and their inverses, had on economic planning for industrialized nations. In particular, Leontief was responsible for developments in inputoutput analysis which attempts to establish equilibrium conditions under which an economys industries have just enough output to satisfy the internal needs of the other industries within the economy as well as all external demands by the nonproductive part of the economy. The analysis entails dividing up a nations economy into n sectors that produce goods and/or services. (Although the Leontief models for actual economies typically require n to be very large, our introduction here will simplify the problems to only n = 2 or n = 3 sectors.) Then data must be gathered to determine the demand placed on each sector both from other sectors inside the economy and from outside demands for consumers that dont actually produce goods and/or services (perhaps considered the n+1st sector). Finally, the analysis determines the minimum that each sector must produce to meet both internal and external demands. To begin, lets consider an economy with just two industries the electric company and the water company. In the production of electricity, the electric company uses both electricity (that it provides itself) and water (that the water company provides). Likewise, in the production of water, the water company uses both water (that it provides itself) and electricity (that the electric company provides). These are the internal demands placed on the two sectors of the economy. Suppose that the production of each dollars worth of electricity requires $.30 worth of electricity and $.10 worth of water. Also, suppose that the production of each dollars worth of water requires $.20 worth of electricity and $.40 worth of water. So, if the electric company produces $5000 worth of electricity and the water company produces $2000 worth of water, then the production process alone requires

0.3(5000) + 0.2(2000) = 1900 dollars worth of electricity 0.1(5000) + 0.4(2000) = 1300 dollars worth of water.
This leaves $5000 $1900 = $3100 worth of electricity and $2000 $1300 = $700 worth of water to meet all external demands.

 Example 3.5.1:

89 Suppose an economy is based on three industrial sectors; agriculture, manufacturing, and energy. The production of a unit of agriculture requires an input of 20% of a unit from the agriculture sector, 20% of a unit from the manufacturing sector, and 20% of a unit from the energy sector. The production of a unit of manufacturing requires an input of 40% of a unit from the agriculture sector, 10% of a unit from the manufacturing sector, and 10% of a unit from the energy sector. The production of a unit of energy requires an input of 30% of a unit from the agriculture sector, 30% of a unit from the manufacturing sector, and 10% of a unit from the energy sector. Is a total output of 12 million units from the agriculture sector, 7 million units from the manufacturing sector, and 6.5 million units from the energy sector enough to meet an external demand of 5.5 million units for agriculture, 1.5 million units for manufacturing, and 2.5 million units for energy? The production process alone consumes the following: 0.2 (12 ) + 0.4 ( 7 ) + 0.3( 6.5 ) = 7.15 million units of agriculture 0.2 (12 ) + 0.1( 7 ) + 0.3( 6.5 ) = 5.05 million units of manufacturing 0.2 (12 ) + 0.1( 7 ) + 0.1( 6.5 ) = 3.75 million units of energy This leaves 12 7.15 = 4.85 million units of agriculture 7 5.05 = 1.95 million units of manufacturing 6.5 3.75 = 2.75 million units of energy. The total production of 12 million units for agriculture, 7 million units for manufacturing, and 6.5 million units of energy does not leave enough after production to satisfy the demand of 5.5 million units for agriculture.

Solution:

Given a certain level of external demand, how can we determine the total production required from each sector to meet both internal and external demands? Back to the original example with the two sectors energy and water, if the external demand is actually $4500 for electricity and $1800 for water, then how much must each sector produce to meet both the internal and the external needs? Let
x = the total output of production from the electric company and y = the total output of production from the water company.

The internal demands are given by the expressions 0.3x + 0.2y for electricity and 0.1x + 0.4y for water.

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Let

de = the external demand for electricity and dw = the external demand for water.

Then the total demands are given by the expressions for the production of electricity and 0.3x + 0.2y + de for the production of water. 0.1x + 0.4y + dw To meet all demands and minimize the waste of producing excess, we get the system of equations x = 0.3x + 0.2y + de y = 0.1x + 0.4y + dw In matrix form, this looks like
x 0.3 0.2 x de = + y 0.1 0.4 y dw

or

X = CX + E ,

where C is the consumption matrix (expressing internal demands of production) E is the external demand matrix (also called the final demand matrix) X is the production matrix (expressing the total production for each sector) If the demand matrix is known and we want to determine the appropriate production matrix, we must solve the matrix equation X = CX + E for X. X = CX + E Start with X CX = E Subtract CX from both sides Use the distributive property (I C) X = E (where I is the identity matrix) 1 If the inverse of the matrix I C exists, then X = (I C) E In particular, in the two-sector economy with electricity and water, to satisfy an external demand of $4500 for electricity and $1800 for water, the corresponding production matrix is 1 1 0 0.3 0.2 4500 X = 0 1 0.1 0.4 1800

0.7 0.2 4500 = 0.1 0.6 1800

To compute the inverse, we use D = (0.7)(0.6) (0.2)(0.1) = 0.4 .

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X=

0.6 0.4 0.1 0.4

0.2 0.4 0.7 0.4

4500 1800

1.5 0.5 4500 7650 = = 0.25 1.75 1800 4275 So, production of $7650 for electricity and $4275 for water is required to meet demands. Just to check that, lets go back to the original set up for the production of electricity and water. 0.3(7650) + 0.2(4275) = 3150 dollars worth of electricity 0.1(7650) + 0.4(4275) = 2475 dollars worth of water.

$7650 $3150 = $4500 for the external demand for electricity and $4275 $2475 = $1800 for the external demand for water, which is precisely the external totals we were trying to meet.
This leaves Example 3.5.2: Suppose that an economy is based on two sectors: wheat and oil. 1 To produce 1 metric ton of wheat requires metric tons of wheat 4 1 and metric ton of oil. To produce 1 metric ton of oil requires 3 1 1 metric tons of wheat and metric tons of oil. Find the total 10 9 production levels required to satisfy a demand (external) of 500 metric tons of wheat and 1000 metric tons of oil. Let x be the total production of wheat (in metric tons). Let y be the total production of oil (in metric tons). 1 1 4 10 The consumption matrix is C = and 1 1 3 9

Solution:

500 The external demand matrix is E = . 1000

(Note that in both the consumption matrix and demand matrix, Row 1 refers to wheat production and Row 2 to oil production.)

 The production matrix is x 1 = (I C) E y

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3 1 4 10 500 = 1 8 1000 9 3 = 80 57 10 19 3 19 45 38 49000 500 = 57 = 860 1000 27500 1447 19

In order to satisfy the demand, production of 860 metric tons of wheat is required and 1447 metric tons of oil is required. Example 3.5.3: An economy of a small island nation is based on three sectors: agriculture, energy, and manufacturing. The production of a dollars worth of agriculture requires an input of $0.20 from the agriculture sector and $0.40 from the energy sector. The production of a dollars worth of energy requires an input of $0.20 from the energy sector and $0.40 from the manufacturing sector. The production of a dollars worth of manufacturing requires input of $0.10 from the agriculture sector, $0.10 from the energy sector, and $0.30 from the manufacturing sector. Find the output required of each sector to meet a demand (external) of $20 billion for agriculture, $10 billion for energy, and $30 billion for manufacturing. In class

Solution:

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CHAPTER 3 Matrices SECTION 6 Cramers Rule

To finish off our discussion of matrices, we will look at one last method to solving a system of linear equations. Cramers rule provides a method to solve a system of linear equations when there is one unique solution and the number of variables is equal to the number of equations. Cramers rule does have the same downfall as the method using the inverse of the coefficient matrix to solve a system (seen in Chapter 3, Section 4), in that the rule cannot distinguish between a system with no solution and infinitely many solutions. It is only useful when there is exactly one solution to the system. To use Cramers rule, we first need to be able to compute the determinant of a square matrix. Notation: Determinant of a matrix For a square matrix A, the determinant of the matrix is written det ( A ) or A .

a b = ad bc . This is precisely the value D c d that we use to find the inverse of a 2 2 matrix.
For a 2 2 matrix the determinant is For larger square matrices, the determinant can be defined recursively. That is, to find the determinant of a 3 3 matrix, we use determinants of certain 2 2 submatrices. To find the determinant of a 4 4 matrix, we use determinants of certain 3 3 submatrices. The pattern continues. Definition: Submatrix of aij The matrix that remains when the entire i th row and entire j th column are eliminated is called the submatrix of the entry aij . We will denote the submatrix of the entry aij with the notation M ij . Example 3.6.1: Determine each of the following submatrices for the matrix 6 2 5 A = 8 1 7 . 3 2 0 a.) M 11 b.) M 32

 Solution: a.) M 11 indicates the submatrix where the 1st row and the 1st column are removed leaving a 2 2 matrix. So, that is 1 7 M 11 = . 2 0 b.) In class

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Definition: Cofactor of aij Let M ij be the submatrix of aij in an n n matrix. The cofactor of aij , which we will denote as Aij , is given by

Aij = ( 1)

i+ j

M ij .

Example 3.6.2:

Determine each of the following cofactors for the matrix 6 2 5 A = 8 1 7 . 3 2 0 a.) A11 b.) A32
1+1

Solution:

a.) A11 = ( 1) b.) In class

M 11 = ( 1)

1+1

2 1 7 = ( 1) (1 0 7 2 ) = 14 2 0

We are now ready to describe how to compute the determinant of a square matrix having size 3 3 or larger.

 How To: Compute the determinant of an n n matrix ( n 3) .

95

Step 1. Choose any row or any column in the matrix. Step 2. For every entry in the chosen row/column, multiply the value of that entry by its cofactor. Step 3. Sum all of the products found in Step 2. This sum is the value of the determinant of the matrix.
6 2 5 Compute the determinant of the matrix A = 8 1 7 . 3 2 0

Example 3.6.3:

Solution:

We can choose any row or any column. Lets choose the first row. We must compute three products: a11 A11 , a12 A12 , and a13 A13 and then determine their sum.

a11 A11 = 6 ( 1)

1+1

1 7 = 6 (1 0 7 2 ) = 6 ( 14 ) = 84 2 0 8 7 = 2 ( 8 0 7 ( 3)) = 2 ( 21) = 42 3 0 8 1 = 5 ( 8 2 1 ( 3)) = 5 19 = 95 3 2

a12 A12 = 2 ( 1) a13 A13 = 5 ( 1)

1+ 2

1+ 3

Adding these results together, we get 84 + 42 + 95 = 53 . Note that because we can choose any row or any column, choosing a row or column that has zeros in it can simplify the process, since multiplication by 0 returns a 0.

Example 3.6.4:

Compute the determinant of the matrix A =

In class

2 3 0 9

0 6 0 0

4 2 0 4 . 0 3 2 1

Solution:

 Now that we can compute a determinant, we can state and apply Cramers Rule. Cramers Rule: Given a system of n linear equations each of the form a1 x1 + a2 x2 + a3 x3 + ... + an xn = b for some constant b, define D as the determinant of the n n matrix of the coefficients. Further, for each xi , define Dxi as the determinant of the n n matrix where the i th column of the coefficient matrix has been replaced by the column matrix of constants in the system. If D 0 , then the solution of the system is Dx Dx Dx Dx x1 = 1 , x2 = 2 , x3 = 3 , , xn = n . D D D D Example 3.6.5: Use Cramers Rule to solve the system. 5x + 7y = 1 . 6x + 8y = 1 To begin, we need to find the determinant D of the coefficient matrix. That is, D =

96

Solution:

5 7 = 5 8 7 6 = 2 . 6 8

Next we need to compute the determinant Dx of the matrix where the 1st column (representing x) is replaced by the constant matrix 1 1 7 = 1 8 7 1 = 15 . . That is, Dx = 1 8 1 Then, we need to compute the determinant Dy of the matrix where the 2nd column (representing y) is replaced by the constant matrix 1 5 1 = 5 1 ( 1) 6 = 11 . . That is, Dy = 6 1 1 Finally, by Cramers Rule, we have the solution to the system: Dy 11 11 D 15 15 = = . and y = x= x = = D 2 2 D 2 2
15 11 and y = is the solution by plugging back 2 2 into the original system of equations.

Verify that x =

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Again, it is important to realize that when D = 0 , we cannot apply Cramers Rule. This will happen when the system has no solution or infinitely many solutions. Unfortunately, we cannot tell which case it is though and to determine that, we must try a different method of solving. Example 3.6.6: Use Cramers Rule to solve the system. x + 2y = 10 3x + 4z = 7 . y z = 1 In class

Solution: