Modeling the price balance of industries with intermediate producers in the closed economy

Abstract

Despite the high degree of development of the mathematical apparatus of microeconomic theory, insufficient attention in the literature is paid to modeling the behavior of economic sectors under the influence of external shocks, taking into account their intersectoral relationships. In particular, we are talking about the study of the pricing policy of industries, which has a direct impact on the magnitude of demand, output and marginality. In this regard, the purpose of this work is to analyze the change in the value added of industries in the context of economic shocks. To achieve this goal, the authors have developed a methodology for modeling the behavior of economic agents in terms of their pricing policy, based on the introduction of demand functions for final consumption in the input-output methodology. Using the proposed methodology, the dynamics of prices for products is studied, taking into account intersectoral dependence, as well as its impact on production volume, value added, marginality and output of each sector. The pricing model also included industries that do not produce products for the final consumer. The proposed methodology was tested on the example of three sectors and gave the following key results. The marginality of industries that do not produce products for the final consumer does not depend on the parameters of the demand functions for the final product. The marginality of such industries is affected only by the structure of intermediate consumption. Too high a level of technological dependence of industries on the intermediate industry is just as unprofitable for it as too low. The results of this work can be useful for planning public investments and assessing their effects on key sectors of the economy.