Homework SoursePLEASE HELP WITH THIS LAB QUESTION READ Wassily Leontief 190
PLEASE HELP WITH THIS LAB QUESTION:
READ: 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:
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
QUESTION:Exercise 2.4 Note that the columns in this table all add up to 1. Explain why this happens.
| 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 |
Solution
Please note that
1. It is a town with only five people. and everyone buys from and sells to the central pool
That means whatever is there up for consumption comes from them only and also it is them only who will consume all the products .
2. Everything produced is consumed
That means that whatever produced is also consumed and there is nothing that is left unconsumed.
So in other words whatever food farmer produces will be consumed by all of the five combined.
Same is true for carpenter, tailor , coal miner, slacker bob.
So that is why all the columns add up to 1 .
We can also call this town as completely self-sustained town as it does not need anything from outside to support itself.
