Imagine the economy as a giant puzzle with many interconnected pieces.
Leontief input-output analysis helps us understand how these pieces fit together.
different industries like agriculture, manufacturing, and services as puzzle pieces. Each piece needs other pieces to function. For example, farmers need fertilizers (made by manufacturers) and transportation (a service) to get their products to market. Manufacturers need steel (from another industry) and energy to produce goods.
Leontief’s idea was to track how much each industry needs from others to produce its output. By mapping these relationships, we can see how changes in one industry affect others. For instance, if there’s a rise in demand for cars, it will boost the steel industry, which in turn affects mining and transportation.
This analysis is like looking at the big picture of the economy. It helps governments and businesses make informed decisions. For example, policymakers can use it to understand the impact of new policies or trade agreements. Businesses can use it to plan production and manage supply chains.
So, Leontief input-output analysis is a powerful tool to analyze the complex web of economic activities.
