Question

Wassily Leontief (1906-1999) was a Russian-born, American economist who, aside from developing highly sophisticated economic theories, also enjoyed trout fishing, ballet and fine wines. He won the 1973 Nobel Prize in economics for his work in creating mathematical models to describe various economic phenomena. In the remainder of this lab we will look at a very simple special case of his work called a closed exchange model. Here is the premise: Suppose in a far-away land of Eigenbazistan, in a small country town called Matrixville, there lived a Farmer, a Tailor, a Carpenter, a Coal Miner and Slacker Bob. The Farmer produced food; the Tailor, clothes; the Carpenter, housing; the Coal Miner supplied energy; and Slacker Bob made High Quality 100 Proof Moonshine, half of which he drank himself. Let us make the following assumptions:
Everyone buys from and sells to the central pool (i.e. there is no outside supply and demand). Everything produced is consumed. For these reasons this is called a closed exchange model. Next we must specify what fraction of each of the goods is consumed by each person in our town. Here is a table containing this information:

Food Clothes Housing Energy High Quality 100 Proof Moonshine
Farmer 0.25 0.15 0.25 0.18 0.2
Tailor 0.15 0.28 0.18 0.17 0.05
Carpenter 0.22 0.19 0.22 0.22 0.1
Coal Miner 0.2 0.15 0.2 0.28 0.15
Slacker Bob 0.18 0.23 0.15 0.15 0.5

So for example, the Carpenter consumes 22% of all food, 19% of all clothes, 22% of all housing, 22% of all energy and 10% of all High Quality 100 Proof Moonshin. The columns in this table all add up to 1. Explain why this happens.

Answer 1

Answer:

The reason for the columns adding up to 1 is that each individual consumes a proportion or a fraction of the total quantity produced under each product category and every product is consumed.  There is no leftover.

When the proportions of all the individuals are added up, the sum is always 1 under each product category because each individual can only consume a part of the whole.

Step-by-step explanation:

a) Data and Calculations:

                        Food   Clothes  Housing  Energy  High Quality 100

                                                                                Proof  Moonshine

Farmer             0.25      0.15       0.25        0.18            0.20                    

Tailor                0.15      0.28       0.18         0.17            0.05

Carpenter        0.22      0.19       0.22        0.22           0.10

Coal Miner       0.20      0.15       0.20        0.28           0.15

Slacker Bob     0.18      0.23        0.15        0.15            0.50

Total                 1.00      1.00        1.00         1.00            1.00