ABSTRACT
Input-output models are characterised by their wealth of detail and simplicity of form. The assumption that industries purchase inputs in immutable proportions has some justification in that possibilities of Substitution are limited by technological considerations. But many models extend the proportionality assumption to the foreign trade sector. Arbitrary scaling of competitive imports to satisfy a balance of payments constraint makes little economic sense: at least in a market economy. The computational problems associated with estimating and solving simultaneous sets of supply and demand equations in a multi-sector model are hardly insuperable but they are sufficiently great to be avoided as far as possible. The perfect elasticity of the supply curve rests on two assumptions. The first is that primary and secondary inputs are everywhere proportional to Outputs. The second assumption is that the rate of return on capital is independent of output.
