Matrices

LU Cramer’s Rule
Applications: Leontief Input-Output
10 Models

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Objectives
■ To use Cramer’s rule solve systems of
linear equations

■ To interpret Leontief technology matrices

■ To use Leontief models to solve input-

output problems

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 Cramer’s Rule
For a n x n matrix, with Ax = b, the ith variable, xi can be
found from,
Ai
xi 
A

where Ai is the n x n matrix found by replacing the ith

column of A by the right-hand side vector b.

3
Example 1
Consider the simple 2 x 2 system below,

7 2  x1    6
4 5  x    12 
   2  

Find the value of the second variable, x2.

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Example 1 - Solution
7 2 7  6
A= 4 A2 = 
 5  4 12 

7 6
A2 = = ad – bc = 7(12) – (-6)(4) = 84 + 24 = 108
4 12

7 2
A = = ad – bc = 7(5) – 2(4) = 35 – 8 = 27
4 5

Hence,
108
x2  =4
27

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 Example 2
Solve the system of equations
 1 2 3  x1   9 
  4 1 6  x     9
   2  
 2 7 5 
 x3 
  13 

using Cramer’s rule to find x1.

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Example 2 - Solution
 1 2 3  9 2 3
 4 1 6 A1 =  6
   9 1 

 2 7 5
 
 13 7 5


1 6  4 6  4 1
A = 1 - (2 ) + (3 )
7 5 2 5 2 7
= 1 1 (5 ) - 6 (7 ) - (2 ) -4 (5 ) - 6 (2 ) + (3 ) -4 (7) - 1 (2 )
= 1 (5 – 4 2 ) - 2 (-2 0 – 1 2 ) + 3 (-2 8 – 2 )
= 1 (-3 7 ) – 2 ( -3 2 ) + 3 (-3 0 )
= -3 7 + 6 4 – 9 0
= -6 3

1 6 9 6 9 1
A1 = 9 - (2 ) + (3 )
7 5 13 5 13 7
= 9 1 (5 ) - 6 (7 ) - (2 ) -9 (5 ) - 6 (1 3 ) + (3 ) -9(7) - 1 (1 3 )
= 9 (5 – 4 2 ) - 2 (-4 5 – 7 8 ) + 3 (-6 3 – 1 3 )
= 9 (-3 7 ) – 2 ( -1 2 3 ) + 3 (-7 6 )
= -3 3 3 + 2 4 6 – 2 2 8
= -3 1 5

A1  315
H en ce, x1 = = =5
A  63

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 Example 3
Show that this system can be written as Ax = b, where
 1 1 0 0 Y   I * G *
 0 1 a 0 C   b 
A  x  b 
 1 0 1 1 Yd   0 
     
 t 0 0 1 T   T* 

Use Cramer’s rule to solve this system for Y.

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 Example 3 - Solution
A1
The variable Y is the first, so Cramer’s rule gives Y = , where
A

I * G * 1 0 0 1 1 0 0
b 1 a 0 0 1 a 0
A1 = A=  
0 0 1 1 1 0 1 1
 
T* 0 0 1  t 0 0 1

1 a 0 b a 0
A1 = (I* + G*) 0 1 1 - (-1) 0 1 1
0 0 1 T* 0 1

1 a 0
1 1
0 1 1 = (1) = (1) (1)(1) – (1)(0) = 1
0 1
0 0 1

b a 0
1 1 0 1
0 1 1 =b - (-a) = b (1)(1) – (1)(0) - (-a) (0)(1) – (1)(T*)
0 1 T* 1
T* 0 1
= b (1) + a(-T*) = b – aT*

Hence,
A1 = (I* + G*)(1) – (-1)(b – aT*) = I* + G* + b – aT*
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Example 3 - Solution cont’d
1  a 0 0  a 0
A = (1 ) 0 1 1 - (-1 )  1 1 1
0 0 1  t 0 1

1  a 0
1 1
0 1 1 = (1 ) = (1 ) (1 )(1 ) – (1 )(0 ) = 1
0 1
0 0 1

0  a 0
 1 1
 1 1 1 = -(-a ) = a (-1 )(1 ) – (1 )(-t) = a (-1 + t)
 t 1
 t 0 1

H e n c e ,
A = (1 )(1 ) – (-1 )(a )(-1 + t) = 1 – a + a t

F in a lly ,
A 1 I *  G *  b  aT *
Y = =
A 1  a  at

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Leontief Model
 In the model there are n industries producing n different
products such that the input equals the output or, in other
words, consumption equals production.

Open model: some production consumed internally by

industries, rest consumed by external bodies.
Problem: Find production level if external demand is
given.
Closed model: entire production consumed by industries.
Problem: Find relative price of each product.

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 Example 4 – Leontief Matrix
Use below Table to answer the following questions.

a) How many units of agricultural products and of fuels are

required to produce 100 units of manufactured goods?
b) Production of which commodity is least dependent on the
other two?
c) If fuel costs rise, which two industries will be most affected?
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 Example 4 – Solution
a) Referring to column 2, manufactured goods, we see that 1 unit
requires 0.1 unit of agricultural products and 0.3 unit of fuels.
Thus 100 units of manufactured goods require 10 units of agricultural
products and 30 units of fuels.
b) Looking down the columns, we see that 1 unit of agricultural products
requires 0.3 unit of the other two commodities; 1 unit of manufactured
goods requires 0.4 unit of the other two; and 1 unit of fuels requires
0.4 unit of the other two.
Thus production of agricultural products is least dependent on the
others.
c) A rise in the cost of fuels would most affect those industries that use
the larger amounts of fuels. One unit of agricultural products requires
0.1 unit of fuels, whereas a unit of manufactured goods requires 0.3
unit, and a unit of fuels requires 0.4 of its own units.
Thus manufacturing and the fuel industry would be most affected by a
cost increase in fuels.
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 Open Leontief Model
(I – A) X = D
I = Identity Matrix
A = input-output Matrix
X = Production level (Output)
D = Surplus available or open for outside
consumption

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 Open Leontief Model: Gross Production
Matrix
 Each industry has a gross production. The gross production matrix for
the economy can be represented by the column matrix

where x1 is the gross production of agricultural products, x2 is the gross

production of manufactured goods, and x3 is the gross production of
fuels.

 The amounts of the gross productions used within the economy by the
various industries are given by AX.

 Those units of gross production not used by these industries are called
final demands or surpluses and may be considered as being available
for consumers, the government, or export.
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 Open Leontief Model
 If we place these surpluses in a column matrix D, then they can be
represented by the equation

where I is an identity matrix.

 This matrix equation is called the technological equation for an open

Leontief model.

 This is called an open model because some of the goods

from the economy are “open,” or available to those
outside the economy.

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Example 5 – Gross Outputs
Technology matrix A represents a simple economy with an
agricultural industry, a manufacturing industry, and a fuels
industry. If we wish to have surpluses of 85 units of
agricultural products, 65 units of manufactured goods, and
0 units of fuels, what should the gross outputs be?

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Example 5 – Solution
Let X be the matrix of gross outputs for the industries and
let D be the column matrix of each industry’s surpluses.
Then the technological equation is .
We begin by finding the matrix .

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Example 5 – Solution cont’d

Hence we must solve the If we reduce by the method of “Gauss-

Jordan Elimination: Solving Systems of
matrix equation Equations,” we obtain

The augmented matrix is

so the gross outputs for the industries
are

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 Closed Leontief Model
(I – A) X = 0
I = Identity Matrix
A = input-output Matrix
X = Production level (Output)
**No surplus of production as all outputs consumed
internally in the industry

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Closed Leontief Model
 If a model is developed in which all inputs and outputs are used within
the system, then such a model is called a closed Leontief model.

 In such a model, labor (and perhaps other factors) must be included.

 Labor is included by considering a new industry, households, which

produces labor.

 When such a closed model is developed, all outputs are used within
the system, and the sum of the entries in each column equals 1. In this
case, there is no surplus, so D = 0, and we have the following:

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Example 6 – Closed Economy
The following closed Leontief model with technology matrix A might
describe the economy of the entire country, with x1 equal to the
government’s budget, x2 the value of industrial output (profit-making
organizations), x3 the budget of nonprofit organizations, and x4 the
households budget.

Find the total budgets (or outputs) x1, x2, x3, and x4.

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Example 6 – Solution
This is a closed Leontief model; therefore, we solve the
technological equation .

or .

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Example 6 – Solution cont’d

The augmented matrix for this system is

If we multiply each entry by –5 and rearrange the rows by

moving row 3 to row 1, row 1 to row 2, and row 2 to row 3, we
have the equivalent matrix

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Example 6 – Solution cont’d

Then, if we reduce this matrix by the methods of “Gauss-

Jordan Elimination: Solving Systems of Equations,” or with a
graphing utility, we obtain

The system of equations that corresponds to this augmented

matrix is
or

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Example 6 – Solution cont’d

Note that the economy satisfies the given equation if the

government’s budget is times the households budget,
if the value of industrial output is times the households
budget, and if the budget of nonprofit organizations is
times the households budget.

The dependency here is expected.

The fact that the system is closed suggests the

dependency, but even more obvious is the fact that
industrial output is limited by labor supply.

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