The Input-Output Model offers estimates of Sales and Demand. Sometimes users assume that both Demand and Sales could be defined as “the amount of money that people and businesses in the region spent on goods and services produced in the region.” However, outside goods/services play into Demand, and outside money plays into Sales. Because outside factors are involved, the two metrics will not be equal. Below is an explanation of the differences between these measures.
Sales represents an industry’s gross receipts, and includes sales to both consumers and other industries/businesses. Businesses in the Agriculture, Forestry, Fishing, and Hunting industry in Connecticut showed approximately $1.58 billion in sales in 2019:
Demand is a region’s total estimated need for the output of an industry. Sales is used in the calculation of Demand, but they are different measures. In 2019, Connecticut required an estimated ~$2.28 billion in output from the Agriculture, Forestry, Fishing, and Hunting industry:
What’s The Difference?
Businesses within a region can sell to businesses and consumers outside the region, meaning that the Sales figure includes dollars coming from outside the region. This in turn means that Sales is much broader than just the money spent by people and businesses inside the region.
Likewise, Demand can be met by businesses within the region or outside the region, meaning that Total Demand is much broader than just the goods/services produced inside the region.
Because both measures are affected to different degrees by outside goods/services and dollars, they will not be equivalent. Sales measures the total revenue received by industries located within a defined region (regardless of the geographical source of the dollars), and Demand measures the total amount of goods/services a region requires (regardless of the geographical source of the goods/services).