Monika Strugała – Economia Regional e Urbana
2.Explain the locational economies
Location theory, in economics and geography, theory concerned with the geographic location of economic activity; it has become an integral part of economic geography, regional science, and spatial economics. Location theory addresses the questions of what economic activities are located where and why. The location of economic activities can be determined on a broad level such as a region or metropolitan area, or on a narrow one such as a zone, neighbourhood, city block, or an individual site.
The size of an urban area is determined by the level of output by the firms and households. Urban areas emerge when firms tend to gain opportunity cost by locating in the area which helps the firm to generate more profits in the area. Urban areas will generate demand for labour who work in the firms that are located in the area, as more and more labour is demanded labourers tend to locate near the city in order to save on transport cost, as more labourers locate near the city then the demand for goods increases.
A firm will locate in an area where it reduces both its procurement costs and also the distribution costs, when the procurement costs are lower than the distribution costs then a firm will locate near the source of its raw materials and when the distribution costs are lower than the procurement costs then the firm will locate near the market.
The abundance of social amenities such as hospitals, schools will encourage households to locate in these areas, because the households are both providers of labour into firms and at the same time consumers of final products. Therefore an increase in amenities in a location will attract labour into the area who will be also consumers of products encouraging economic growth.
Therefore the firms will encourage growth if only the above advantages are associated with the area they locate their production process, they will consider all discussed factors . When firm increase their production then this eventually encourages economic growth and development.
5. The importance of transport costs for the localization
The benefits of a location minimizes transport costs either for passengers or freight. This is at the core of classic industrial location theories where transport-dependent activities seek to minimize total transport costs. With the expansion of transport infrastructures, shifts in manufacturing, new economic activities such as high technology, logistical management and an overall decline in transport costs, cost minimization is no longer a substantial consideration in location. However, transport costs cannot be easily dismissed and must be considered in a wider context where the quality and reliability of transport is of growing importance. It has been demonstrated that travel time, instead of distance, is the determining factor behind commuting ranges, a notion that increasingly applies to freight distribution.
A firm will locate in an area where it reduces both its procurement costs and also the distribution costs, procurement costs are those costs associated with the transportation of the raw materials into the firm. Distribution costs are those costs associated with transport costs in distributing the goods and services to the consumers.
When the procurement costs are lower than the distribution costs then a firm will locate near the source of its raw materials in order to gain competitive advantage through its reduction in its cost of production.
When the distribution costs are lower than the procurement costs then the firm will locate near the market, this reduces the costs of producing the goods and therefore the firm gains competitive advantage.
If the firm is a monopoly then the firm does not necessarily take into consideration the location, a firm will also locate near its competitors in order to experience a reduction in the costs of production, they will locate near competitors in order to reduce the cost of marketing because consumers are closer to them, the consumers will have a variety of goods and services to choose from.
Therefore the firm will locate in an area where there is a possibility of reducing the price of production. The level of output by firms in an area will determine the economic size of the area, when output by firms and household is high then the area experiences economic growth.
13. Von Thünen model for the city
The Von Thunen model of agricultural land use was created by farmer and amateur economist J.H. Von Thunen (1783-1850) in 1826 . Von Thunen's model was created before industrialization and is based on the following limiting assumptions:
ñ241 The city is located centrally within an "Isolated State" which is self sufficient and has no external influences.
ñ241 The Isolated State is surrounded by an unoccupied wilderness.
ñ241 The land of the State is completely flat and has no rivers or mountains to interrupt the terrain.
ñ241 The soil quality and climate are consistent throughout the State.
ñ241 Farmers in the Isolated State transport their own goods to market via oxcart, across land, directly to the central city. Therefore, there are no roads.
ñ241 Farmers act to maximize profits.
The Thünen model suggests that accessibility to the market (town) can create a complete system of agricultural land use. His model envisaged a single market surrounded by farmland, both situated on a plain of complete physical homogeneity. Transportation costs over the plain are related only to the distance traveled and the volume shipped. The model assumes that farmers surrounding the market will produce crops which have the highest market value (highest rent) that will give them the maximum net profit (the location, or land, rent). The determining factor in the location rent will be the transportation costs. When transportation costs are low, the location rent will be high, and vice versa. This situation produces a rent gradient along which the location rent decreases with distance from the market, eventually reaching zero. The Thünen model also addressed the location of intensive versus extensive agriculture in relation to the same market. Intensive agriculture will possess a steep gradient and will locate closer to the market than extensive agriculture. Different crops will possess different rent gradients. Perishable crops (vegetables and dairy products) will possess steep gradients while less perishable crops (grains) will possess less steep gradients.
Even though the Von Thunen model was created in a time before factories, highways, and even railroads, it is still an important model in geography. The Von Thunen model is an excellent illustration of the balance between land cost and transportation costs. As one gets closer to a city, the price of land increases. The farmers of the Isolated State balance the cost of transportation, land, and profit and produce the most cost-effective product for market. Of course, in the real world, things don't happen as they would in a model.
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