Learning Outcome: 

After completing this lesson, you will be able to define final demand and identify and interpret data on final demand in the US333 SAM. 

What is Final Demand? 

Final demand is the purchase of commodities for consumption, or final use.  The commodities are not used as intermediate inputs into production processes where they are further transformed into other products. Examples of goods purchased by consumers for final use are clothing, cell phones and furniture.

There are four categories of final demand:  

1. Private household consumption of goods and services
   
   
2. Government consumption of goods and services
   
   
3. Investor demand for commodities to be added to the country's capital stock
   
   
4. Foreign demand for a country's exports
   

Final Demand Data in the US333 SAM

We can visualize final demand in a country by examining the final demand accounts in the US333 SAM. 

Let's consider income first, before we study expenditure. The totals of the shaded row accounts in Figure 2 report the total income of private households, government and investors. The ROW's row account shows its earnings from selling commodity exports to the home country plus its capital inflows or outflows to the home country, reported in its savings-investment row account. 

The shaded column accounts in Figure 2 report how income is spent. Recall from our study of the SAM that income is equal to expenditure for all accounts. But not all of the income reported in the SAM is spent on commodities. Households pay taxes, and both households and the government may save (or dissave) a part of their income. Their net income, excluding taxes and savings, is spent in full on commodities.  The ROW's column account reports its spending on exports from the US. We won't consider the ROW accounts further in this lesson.

Figure 2.  Final demand accounts in the US333 SAM

Larger version of table is available  HERE (21.0 KB) .

The Consumption Basket

Commodity purchases by households, government and investors are reported in the matrix formed by the intersection of the domestic final demand columns and the commodity rows. Down the columns of this matrix, you can view the composition of the basket of goods and services purchased by each category of final demand. For example, the budget share of services in the private household's basket of commodities is almost 80% (7,844 / (68 + 2,037 + 7844).   

Sales Destinations

Along the rows of the matrix, you can see the sales of each commodity to each category of final demand. For example, services are sold mostly to households, and government and investors do not buy agricultural commodities. 

Understanding the composition of commodity purchases by households, government and investors, and viewing where commodities are sold, can help you learn about an economy and interpret results from your model experiments.