Overview perfect competition, monopolistic competition, oligopoly and monopoly
Endogeneous markets size
the process of cumulative growth (decline) from an expansion (contraction) of economic activities
absolute vs comparative advantage
Absolute advantage:
The advantage if one country uses fewer resources to produce that product than the other country does
Comparative advantage:
Differences in opportunity costs in production, which allow firms diff. Locations to specialise in production and benefit from productivity gains
Significance of growth of cities:
Comparative advantage helps to explain what goods and services firms in cities will specialise in production and export, and the gods and services that a city will have to import. It reveals that the incentive is for firms in a city to specialise in the production of goods and services in which their opportunity costs in production are lower than firms in other cities.
marginal cost
change in total costs from producing one more unit of outcome
law of diminishing returns/marginal utility
Law of Diminishing Returns:
As more units of a variable input are added to a fixed input, the additional output (marginal returns) decreases over time.
Law of Diminishing Marginal Utility:
As consumption of additional units of a good increases, the satisfaction (utility) from each extra unit decreases
Consumers maximize utility when marginal utility = price, ensuring optimal allocation of resources.
externalities
a cost or benefit resulting from some activity or transaction that is imposed or bestowed on parties outside the activity or transaction
export base and non-base
non-base: satisfying consumption demands within a city
Export-base: economic activities associated with the production of goods and services for another region. It also introduces the concept of a trade multiplier to highlight the more than proportionate expansion or contraction in non-base economic activities
significance to growth of cities
The export base provides a rationale for spatial linkages (relationships) or trade to occur between cities, enabling them to grow or contract. Firms export goods and services and the export earnings lead to higher resident incomes, as households own factors for production, enabling firms in a city to expand production to meet the increase consumntion desired by its residents
The multiplier effect implies that city incomes experience a prolonged increase. It provides opportunities for firms to engage in further productivity gains by increasing in size and by employing more factors or production and enabling them to make higher factor payments, raising city income.
increasing internal return to scale
Productivity gains that a firm benefits from when it employs more factor inputs in production
significance in growth to cities:
Certain firms can benefit from increasing returns to scale as specialisation and expansion in production permit them to become even more productive and produce at even lower average costs in their industries. The productivity gains enable them to make higher factor payments, raising city income.
betterment tax
Definition: A tax imposed on landowners or property owners to capture the increase in property value resulting from public infrastructure projects or government actions.
Key Idea:
Based on the principle that public investments (e.g., new roads, transit systems) increase private land values.
The tax helps fund these public improvements.
Purpose:
Recover public investment costs.
Reduce inequality by redistributing unearned gains from property value increases.
Calculation:
Tax amount = Increase in property value due to public improvement.
Example:
A new metro line raises land values in nearby areas; a betterment tax collects a portion of this value increase.
Implications:
Encourages equitable urban development.
May face opposition from property owners who must pay the tax.
High and small order goods
High-Order Goods:
Expensive, infrequently purchased items (e.g., cars, furniture, luxury goods).
Require larger market areas and higher customer thresholds to sustain.
Found in higher-tier cities or central locations.
Small-Order Goods:
Inexpensive, frequently purchased items (e.g., groceries, daily necessities).
Require smaller market areas and lower customer thresholds.
Available in lower-tier locations like small towns or neighborhood stores.
Key Difference:
Frequency of Purchase: High-order goods are bought rarely, while small-order goods are bought regularly.
Location: High-order goods cluster in major urban centers; small-order goods are distributed widely.
Urban Implications:
Shapes the urban hierarchy and retail location patterns.
Higher-order centers offer both high and small-order goods, while lower-tier centers focus on small-order goods.
urban rent gradient
Definition: Shows how land value decreases as distance from the central business district (CBD) increases.
Land near the CBD is more expensive due to higher demand for accessibility.
Land farther from the CBD is cheaper due to reduced competition for proximity.
Explanation:
Bid Rent Theory: Different land users (e.g., businesses, residents) compete for land closer to the CBD based on willingness to pay.
Results in a declining rent curve as distance from the CBD grows.
Commercial Use: High rent near CBD for offices, retail.
Residential Use: Cheaper land further away, leading to suburban development.
Urban Planning: Influences zoning and transportation networks.
bid rent curve
Definition: A curve representing how much different land users (e.g., businesses, residents) are willing to pay for land at varying distances from the central business district (CBD).
Land closer to the CBD has higher value due to better accessibility.
Different users have varying maximum willingness to pay.
Commercial Users: Pay the most for proximity to the CBD to maximize foot traffic and accessibility.
Residential Users: Pay less as they prioritize affordability over proximity.
Shapes urban land use patterns.
Explains zoning: offices near CBD, housing farther out.
Influences urban sprawl and transportation demand.
Economy of scale, Agglomeration economies and diseconomies
Economies of Scale:
Cost savings due to increased production within a single firm.
Internal to the firm: Bulk buying, specialization, spreading fixed costs.
Example: A factory reducing costs by mass-producing goods.
Agglomeration Economies:
Cost savings due to multiple industries clustering geographically (external to the firm).
Focus on proximity to other firms, shared infrastructure, and labor pools.
Example: Financial services clustering in the City of London.
Agglomeration Diseconomies:
Costs increase as too many firms (multiple industries) cluster in one area.
Issues:
Overcrowding and competition for limited resources (land, labor).
Increased traffic, pollution, and infrastructure strain.
Example: Rising office rents and commute times in urban cores.
Localisation Economies and Diseconomies?
Localisation Economies:
Cost savings due to the same industry clustering in a specific area.
Benefits include:
Access to specialized labor pools.
Proximity to suppliers and customers.
Knowledge sharing within the industry.
Example: Silicon Valley for tech.
Localisation Diseconomies:
Costs increase due to over-concentration in one area.
Issues include:
Congestion, increased competition for labor/resources.
Rising land and rent prices.
Example: Overcrowded industrial hubs causing inefficiency.
Urbanisation Economies and Diseconomies?
Urbanisation Economies:
Cost savings due to diverse industries clustering in cities.
Shared infrastructure (roads, utilities).
Diverse labor market and services.
Innovation from cross-industry interactions.
Example: London as a hub for finance, culture, and tech.
Urbanisation Diseconomies:
Costs increase due to city overgrowth.
Problems include:
Traffic congestion.
High living and operating costs.
Pollution and strain on infrastructure.
Example: Megacities with poor urban planning.
-> part of agglomeration dis/economies
Ricardian Rent Theory?
Key Principles:
Land is fixed: Limited supply with designated uses (e.g., industrial, residential).
Land rent is determined by demand: Rent rises with higher demand for productive or desirable land.
Residual Payment: Land rent = revenue – production costs.
Land rents are economic rent: Transfer earnings are zero, rents do not affect production costs.
Taxes on Land:
Do not affect the price (rent) paid by users or the quantity supplied.
Do affect the economic rent earned by landowners.
Short-Run Relevance:
Planning constraints: Restrict land use, leading to competitive bidding.
Development decisions: Developers without secured land use residual valuation (residual = development value – costs).
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