Final Demand

Definition

Final Demand or final consumption in the context of an Input-Output Model denotes the ultimate destination of goods and services used up by individual households or the community to satisfy their individual or collective needs or wants.

Formula

Final demand might be denoted as a vector or matrix (typically using $F$ or $Y$).

Single Region Case

In the single region case final demand is a vector and depicted as a column next to the Input-Output Matrix.

Multi-Region Case

In the multi-region case, the global final demand a tensor, usually represented as a matrix of vectors and denoted as "Y":

$\begin{align} Y^{pq}_{i} = \begin{bmatrix} Y_{1,1} & Y_{1,2} & \cdots & Y_{1,k} \\ Y_{2,1} & Y_{2,2} & \cdots & Y_{2,k} \\ \vdots & \vdots & \ddots & \vdots \\ Y_{k,1} & Y_{k,2} & \cdots & Y_{k,k} \end{bmatrix} \end{align}$

with the final demand vector of domestic (country q) production in the main diagonal and direct imports to final demand from country p captured by off-diagonal vectors.

Usage

The precise nature of final demand depends on the economic system modeled and may include:

• Consumption by Households
• Government Expenditures
• Inventories
• Capital Formation (Investment)
• Foreign Exports

Adjusting final demand is and exploring economic implications is a core element of Input-Output Analysis.

Notes

The sum of final demand equals to GDP (=sum of final sales)

Code

• pymrio

Further Resources

• Crash Course on Input-Output Model Mathematics
• Introduction to Input-Output Models using Python

References

• Eurostat SUT Manual