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.
Single Region Case
In the single region case final demand is a vector (usually denoted as f) and depicted as a column next to the Input-Output Matrix.
In the multi-region case, the global final demand a tensor, usually represented as a matrix of vectors and denoted as "Y":
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.
The precise nature of final demand depends on the economic system modeled and may include:
- Consumption by households
- Government expenditures
- Capital Formation
Adjusting final demand is and exploring economic implications is a core element of Input-Output Analysis.
The sum of final demand equals to GDP (=sum of final sales)
- Eurostat SUT Manual