NEG - Krugman Model

Question 1

Intuition of Krugman model

Answer 1

• interaction between internal IRS, transport costs and factor mobility -> determination and changing of location structures

Question 2

Centripetal and centrifugal occurrences in Krugman model

Answer 2

Centripetal: firms close to workers (labour supply), workers close to firms (lower prices): home market effect

Centrifugal: immobile farmers, competition

Question 3

Assumptions of Krugman model

Answer 3

• (manufacturing) workers are mobile

- agricultural wage is 1 on all regions (because of CRS and no transport costs)