Instead the analyst should specify the expenditure pattern of the institution or industry in detail. Using this alternative approach, the direct effect on final demand, i.e. output, in the region will be less than the change in sales. This happens because the model includes the institution s or industry s production function and final demand is an estimate of the value, in producer prices, of the factor inputs needed to generate the specified change in level of sales. The difference between the estimated change in final demand and the change in sales is the total value added. Margins are used to convert purchaser prices to producer prices.
Margins depend on the consumer.
For example, households pay the full retail margins, but government may pay little or no retail margins because it has more buying power than individual households. Margins split a purchaser price into appropriate producer values, each value impacting a specific industry. For example, the purchaser price of a tire at an automotive retailer includes the producer price at the factory door plus transportation costs, the wholesaler s markup, and the retailer s markup. Unless edited by the analyst, margins used in impact analysis are national averages. Deflators are associated with commodities, and are also used to adjust margin values.