Scale Economies and Agglomeration Flashcards
which are the 2 types of econimies of scale ?
internal & external economies of scale
define internal EOS
reducing avergae costs through increasing production volume - especially in industries with high fixed costs)
define external EOS
also known as agglomeration effects. they arise from geographic concentration of companies
why are external EOS so important and for whom?
increasingly important for developing countries as the proximity enables to share resources, exchange information and benefits from a larger pool of labor and specialized suppliers
also with transition from agriculture to industrial & servie-based econ
bc workers are increasingly concentrated in centers
why do cities play a crucial role for agglomeration effects?
companies in cities benfit from:
- lower transportation costs
- better matching supply and demand
- knowledge spillover
importance of density for agglomeration erffects, bc it faciliates the
exchange of information and resources
2 different types of cities and their economic functions
1) larger, diversified cities: new companies and ideas emerge. they mostly offer a borad range of industries
2) smaller, specialized cities: focus on the production of standadized goods and benefit from localization effects
why does the location preference of a company may change throughout a life cycle of a company?
young companies benefit from diversity
mature companies prefer sepcialized cities to reduce the costs and benefit from the localization effects
what causes the stability of cities’ relative size?
due to localization effects encouraging the companies to stay ( in regions with established and specialized labor)
what are common mistakes of policymakers?
- they underestimate the strength of market forces that drive the spatial transformation
- fear of urbanization (-> displaced as even in developing countries significant contribution to economic growth)
- focusing on the city size rather than the function
- establishment of new cities near established centers (they can succeed but they often suffer fro the same issues)
what could Policymakers do better?
PM should play a proactive role in promoting a diverse and dynamic urban landscape
+ promoting flexible land markets and property rights
+ loosen building regulations
+ investment in urban infrastructure and good governance
explain investment in urban infrastructure and governance a bit further
- investments in transportation infrastructure, public utilities and education (to maximize the benfits of AE)
- good gervance include transparency, accountability and anti-corruption measure (to create a favorable investment climate and fostering susatinable growth)
what were the main 2 reasons for shaping the spatial distribution of businesses and jobs?
declining transportation costs and technological advancements
what have been the results of declining transportation costs and technological advancement in terms of spatial distribution?
it has led to spatial separation of managment and production as it faciliated the communnication, coordination and monitoring of production facilites over long distance
where are the headquarters most likely to find?
cencentrated in larger cities to
* exhibit greater agglomeration advantages
* employ highly skilled workers willing to pay for the amentities of big cities
where can you find the production facilities?
mostly located in smaller, specialized towns benefiting from lower land prices and access to specialized labor
