Appunti di Regional Economics + Land Rent Theories ( Primo + Secondo Parziale)

LOCATION THEORIES

chap 1, 2, 3

CAP. 1

deals with location of firms and people.

If you analyze a market you can see that there are agglomeration.

If you are in an agglomeration, you save money (saving).

• Agglomeration economies are divided into 3 categories:
• dispersion > diagram

1. Economies of Scale

(ex. think about a car). First world production increase, the amount of people working is the same. But future creations will have a part for labor cost, but both part of people that innovate, because you must produce most of an innovation (maximum capacity an employer can do because cost will (can/may) (divided) by this million of cars.)

(ex. micro firm that is only in Europe areas, this because to build it and is monetary the vehicle you need a lot of people because every day to produce cars)

So if you produce on a large scale the unit cost drops.

• For this reason, we can say that production is divided in a few number of large plants (in this way firms can divide the production).

2. Localization Economies

The advantages that you get because you are located in an area where many firms belong to the same industry, so a benefit is when the number of sector increase in the industry size.

(increase closure) at the border of the area.

Y is still the quantity of output produced.

Labour

people

Output

Capital

(plants) (machines)

ex. 50 = 2, 2

A is the area.

If A = 48 = 2, 2

Avoid area, the small firms not belong this area, many people avoid big firms, few have few places.

The advantage come from the size of the industry (sector) that is present in an area (in an industry there are firms of the same sector).

The quantity of output produced depends on, so people are in plants and plants in industry.

ORGANIZATION ECONOMIES

The advantages depend on the size of the city, the bigger the advantages are.

ex. A firm is located close to other firms which belong to the same industry, and the authority is concentrated in one area, and to be easily found.

It is an advantage not only to firms but also people that decide to locate in cities because of the services offered.

Unity is a driving factor of the behavior of people and of firms in the market.

TRANSPORTATION

Transportation = Opportunity Cost

Opportunity cost is the cost of spending time to do something that could be devoted to doing something else.

So, in a market economy, you decide to go to a place if the cost of spending time to go there is lower than the cost of staying there.

These 2 forces explain the location of activities all over space.

1. WEBER'S MODEL
2. What can explain the choice of a firm to be located in one place?

What can explain the choice of a firm to be located in one place?

These 3 forces explain location choices.

1. He asks himself to solve the problem:

Then I wrote the function that explains:

CT = ax + by + cz

The point of the factory which minimizes the transportation cost.

1. He supposes: two raw materials, one producer, and unlimited number of resources.
2. To solve the problem he assumes a triangular board (peso due and equilibrio).
3. Him, he assumes a uniform final market (C) and two constant raw material markets (M₁, M₂). Have to be.

1)

IF (A) produces goods with ECONOMIES OF SCALE which means that A gets advantage because it produces goods in high quantity, the cost of production goes down.

A DISCOUNT ENLARGES A MARKET AREA

What happens is that the boundary that divides the 2 market areas that moves to the right and enlarges the market area of A.

2)

IF TRANSPORTATION COSTS (τ) are smaller in area B than A[ Ƭ_B < Ƭ_A ]

ex: In area A you can move only by foot, you can’t use the car. In area B you can move by car.

Economies of scale and transportation costs can change the size of a market area.

Remember that CT changes for consumer, not for producer.

CAP. 1 Location Theory

^{24 Marzo}

Up to now we have taken into account 2 forces: agglomeration (economies) and transportation costs.

Are these sufficient so that firms and individuals get to it? So they are located close one to the other?

Then...

We saw what happens because of the presence of distance from the consumer to the producer point. There are market areas created, in which a producer is protected by distance from other competitors.

Last time, we assumed that:

• D_DEMAND has a spatial dimension (consumer were everywhere) (defined).
• S_SUPPLY is a point in space.

Important assumption to find what we call “Market Areas”!

NEW URBAN ECONOMICS

Now, we reverse the assumptions and we assume that:

• D is a point in space
• S has a spatial dimension.

Why?

The reverse of the assumption is because we are going to ask ourselves something else with respect to the previous theories.

Question:

We are looking for the PRODUCTION AREAS (No more MARKET AREAS).

We look for how much space is occupied by a firm in order to produce its goods. (So they don’t need only capital and labour but also a space!)

→ Here consumers come in their location to the point in space where the market is.

! We are interested in the behaviour of firms.

This curve which represents the willingness to pay for the farmer is called the

LINE OF INDIFFERENCE LOCATION FOR THE FARMER

• If we want to keep r(d) fixed = 10€ and we don’t want to move d = 1km, to earn more you have to go down with the curve

(ci spostiamo dei farmers) The curve shifts parallel downward

THE FARMER LOCATES ACCORDING TO HIS WILLINGNESS TO PAY

Now we assume that there are 3 categories of farmers producing

• A = strawberries
• B = apples
• C = potatoes

Transp. Costs: CT (strawberries) > CT (apples) > CT (potatoes)

• Because you risk much to destroy when you transport them

So this category is the one willing to pay more

• Transportation costs per unit of distance are reflected into the slope → The higher CT ← The higher Tx
• This the willingness to pay for the producers of strawberries the same as for the other categories

1. This is how farmers reasoning

(In comparison)

Alonso: r(d) = (Px - π - c(d)) x(d)

Von Thünen: r(d) = (Px - Cx - T·d) X

The same

Cx = production costs where there was the maxual profit

The same but in Alonso the quantity of goods depends on the distance

π the profit

c(d) production cost transportation cost

T·d transportation costs are included here

The equation on a chart

r(a) = (Px - π - c(d)) · X(d)

Also here the relationship between r and d is negative

r

Willingness to pay curve (demand side) - Bid rent curve

r₁

r₂

1. Center D₁
2. D₂

Given certain level of profit

We have a curve and not a line because:

∂r(d) / ∂d = (Px - π - c(d)) · (∂x(d) / ∂d) - (∂c(d) / ∂d) · x(d)

This is the SLOPE