Flashcards in Test Deck (51):
What is economics?
Profit maximising and utility maximising choices?
What is geography?
Location and the spatial distribution of activity.
What is urban and regional economics?
Profit maximising and utility maximising location choices.
The consequences of location choices.
What is happening to the population in urban areas?
55% of the worlds population is living in urban areas.
Projected to reach 70% in 15-20 years.
In 1990s there were only 10 cities with a population exceeding 1 million people. Now there are 30.
What is the death of distance hypothesis?
With improving technology and the Internet, distance becomes less of a factor.
Things can be shipped around the world.
Due to globalisation.
Why does location matter?
Even though natural resources can be distributed.
Human capital and social capital are not well distributed.
Culture and history of the location matters. May already have infrastructure.
What is social capital?
The networks of relationships among people who live and work within a particular society, enabling that society to function effectively.
What is tacit knowledge?
Knowledge that you gain from personal experience.
For example your culture, your job or community.
Knowledge is not just information, it is what you can do with information.
Difficult to transmit as it is not codified knowledge.
What is a city?
1) grid cells with a density of more than 1,500 Inhabitants per square km are selected
2) the neighbouring cells which meet this requirement are clustered. The clusters with populations higher than 50,000 are urban centres
3) all areas with at least half their population inside of the urban area are selected as candidates to become cities.
4) in the UK cities can be royally appointed.
What does R.Sennet say about cities?
A city is a place where strangers are likely to meet, where new ideas are formed in public space. A common ground. Yet, true cities are dense, messy and uncontrolled.
How does free dictionary define a city?
A centre of population, commerce and culture.
How does B. Goodall define a city?
A city is a relatively large and permanent human settlement.
How could a region be defined?
By particular types of economic activity tangled in history, culture, administrative or geographical boundaries.
How are normative regions defined?
According to political will (mostly based on size of population for administrative purposes but also historical, cultural and other factors)
How are analytic (functional) regions defined?
According to geographical criteria or, more often, using socio-economic criteria (e.g. Homogeneity, complimentarily and specialisation of regional economies).
How is a region defined in Europe?
The Nomenclature of Territorial Units for Statistics (NUTS) is defined and developed according to normative perspectives. Three levels are defined: NUTS1, NUTS2 and NUTS3
What is the definition of a region?
A relatively contained and cohesive network of trade is called a functional economic area (FEA).
What components make a region?
Labour market areas - Travel to work areas (TTWAs)
Supply chains in industry and commerce
Service markets for consumers
What are the five axioms?
1) Prices adjust to achieve local equilibrium ie house prices
2) Self-reinforcing effects generate extreme outcomes
3) Externalities cause inefficiency
4) Production is subject of economies of scale
5) Competition generates zero economic profit
What does Self-reinforcing effects generate extreme outcomes mean?
Leads to changes in the same direction.
Cluster of artists attracts other artists.
What is meant by production is subject to economies of scale?
Average cost decreases as production increases.
Invisible inputs: required to produce one or a thousand units.
Factor specialisation: benefits from continuity and repetition.
Extent of scale varies across activities.
What is meant by competition generates zero economic profit?
Entry into market continues until economic profit is zero. Aka opportunity cost.
Economic cost includes explicit cost and opportunity cost of time and funds.
Firms earn just enough to stay in business, but not enough to attract firms.m
Why do cities exist?
Humans are social creatures.
First cities developed for defensive and religious reasons.
Role of political parties.
Resource cities - aka close to immovable inputs.
In the long-run cities are centres for trade, production and consumption.
Explain the idea behind clustering together facilitates trade/
Buyers and sellers in central location.
People can socialize and exchange ideas.
Weekly rural market but larger and always open.
Explain the idea behind clustering together facilitates production.
EOS makes it more effective to produce on big factories over home workshops.
Big factories incentivise workers to locate nearby.
It's cheaper and easier to collaborate with partners nearby.
Explain the idea behind clustering together facilitates consumption.
Allows for one shop and comparison shopping and networking effect in consumption (cinemas).
Large population sustains niche markets and complex services.
What are the 3 assumptions of a world with no cities?
1) Equal productivity of all land and all workers.
2) Constant returns to scale in exchange and transport (unit cost of each transaction is same, regardless of quantity transacted)
3) Constant returns to scale in production
(unit cost of each unit produced is same, regardless of quantity produced)
What are the 3 implications of a world with no cities?
1) Everybody would be self-sufficient:
No comparative advantages
No productivity benefit from specialization and exchange
2) Exchange would only cause transport costs without any benefit
3) Dense living is costly (bid up price of land,noise,…) without any benefit
What are the results of a world with no cities?
No reason for specialization and trade.
Uniform price of land and population density.
What happens to cities if you drop the assumption of equal productivity?
Differences in productivity generate comparative advantage:
one area may be better in producing one or more products than the other region.
If one region has a comparative advantage then it is more beneficial to produce that item and trade for another item that another region may have a comparative advantage in producing.
Specialization and gains from trade.
What happens to cities if you drop the assumption of constant return to scale exchange?
Economies of scale in exchange cause trading firms to act as intermediary between buyers and sellers: trading firms will emerge because they ultimately have lower transaction costs.
Trading firms (& workers) will tend to concentrate in areas that facilitate collection and distribution of goods.
Trading firms (distributors) and their employees (but also customers) will locate near these points:
Rising population drives up land prices
Higher price of land increases density, generating a trading city
Give some examples of trading cities in history.
Cities in the ancient world (Phoenicians, Greeks, …)
City-states in the middle ages, particularly in Italy, Flanders and Germany
Trading cities along the silk road (Samarkand)
East India Company and the birth of globalisation
American colonies in the 1700s
What happens to cities if you drop the assumption of constant returns to scale in production?
EOS creates incentives to concentrate resources in factory.
Gains from scale economies partly offset by increased transport costs.
Workers have incentive to live close to factory to economize on commuting time:
Competition for land bids up its price.
Higher price of land increases density, generating a factory city.
Why is city size limited by transport costs?
Transport costs limit market area (limiting production and the possibilities of economies of scale).
Commuting costs increase costs of production, compensating the effects of economies of scale.
What happens if worker live close to the factory to economize commuting costs?
Price decreases (widening market area)
More efficiency and lower AC.
Price Increases (shrinking market area)
Workers live farther away, commuting costs increase, higher salaries
needed and increases in hourly costs of production.
Higher density in cities, higher urban costs, higher salaries
needed and increases in hourly costs of production.
How does the axiom of competition generates zero economic profit work in a city?
Firms enter the regional market until each makes zero economic profit
Factories span the region
Every location lies within market area of a factory
Complete labour specialization, with rural bread and urban shirts
Zero economic profit for firms & locational indifference for workers
How does the axiom of prices adjust to ensure local equilibrium work?
Locational indifference in rural areas
Lower travel cost at locations close to factory city
Rural households bid up the price of land near cities
Locational indifference between rural and urban areas
Factory wage compensates for higher land prices in cities
Why do firms locate close to one another?
Localization (specialisation) economies
Urbanization and Diversification economies
Common roots, different consequences
Share intermediate inputs
Share a labour pool
Get better matches of workers and labour tasks
What are agglomeration economies?
Positive externalities and benefits arising from firms and people being located near one another (in cities or industrial clusters).
What are localization economies?
Intra-industry externalities, arising from co-location of firms operating within the same sector.
The productivity of labour in a given sector in a given city is assumed to increase with total employment in that sector.
What are urbanization and diversification economies?
Inter-industry externalities, arising when firms of different industries cluster and locate close to one another.
Using an example of dressmaker who produce high fashion dresses, explain how clustering aids sharing intermediate inputs.
Rapid changes in fashion and output: Firms are small & nimble
Scale economies in buttons large relative to demand of single dressmaker
Face time require to design and fabricate buttons to fit dresses
Dressmakers share a button-maker, and cluster to facilitate face time
Using an example of high-technology firms, explain how clustering aids sharing intermediate inputs.
Rapidly changing products necessitates intermediate inputs
Firms share intermediate input suppliers to exploit scale economies
Face time in design and fabrication requires proximity and cluster
What is a benefit and cost of clustering?
Localisation economies reduce cos of intermediate input.
Competition for workers increases labour cost.
How does clustering aid in sharing the labour pool?
A cluster of firms facilitates the transfer of workers from unsuccessful firms to successful ones.
Several producers in an industry may cluster near a common labour pool if producers are:
- Uncertain about their future demand for labour
- Uncertain about future skills needs
Clustering reduces costs of hiring/firing workers in environment with high turnover (low relocation and switching costs).
Information about job opportunities available through local social networks
How does clustering facilitate labour matching?
Firms and workers not always perfectly matched
Mismatches require training costs to eliminate skill gap
Areas with large labour pools may have more skill types: better matching if a firm’s skill needs change
How does clustering aiding in sharing knowledge?
Firms in an industry share ideas and knowledge
Mysteries of trade are “in the air”
Innovations are promptly discussed, improved, and adopted
Knowledge spillovers stronger in dynamic industries (new industries, innovation networks, open innovation)
Spillovers through informal interactions and movement of workers
What are urbanization economies?
Relatively more populous localities are also more likely to house universities, industry research laboratories, trade associations and other knowledge generating organizations.
What are diversification economies?
The diverse industry mix in an urbanized locality also improves the opportunities to interact, copy, modify, and recombine ideas, practices and technologies across industries.
What is a cluster?
A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities.