Week 3

Question 1

what are key areas for improving market access of developing countries? (2)

Answer 1

1. Foster regional cooperation to facilitate sharing of transportation infrastructure, harmonizing regulations and border crossing procedures
2. Increase competition in the transport sector

Question 2

For what do transport costs tend to be higher? (4)

Answer 2

1. Perishable goods
2. Heavy/bulky items
3. Countries far away from major trading partners
4. landlocked countries

Question 3

What is CIF

Answer 3

the value of the traded good at the port of destination (FOB value, cost of carriage, insurance)

Question 4

What is FOB

Answer 4

Value of the traded good at the port of shipment (includes purchase rpice of the good, cost of transporting to the port of shipment, loading the carrier)

Question 5

How can you quantify transport costs? (5)

Answer 5

Indirectly, by measuring the price difference of a good
Shipping time
Freight prices
Communication costs
CIF and FOB

Question 6

How do transport costs and scale economies interact?

Answer 6

When transport costs are high, only local firms will supply the market: no clustering
When transport costs fall, economies of scale can be exploited and firm clustering arises

Question 7

When is trade between two countries higher? (4)

Answer 7

1. Geographical distance is smaller and countries have access to waterways
2. Institutional and cultural idfferences are smaller
3. Countries share a common border, common language, have a trade agreement
4. Trade barriers are lower and exchange rates less volatile

Question 8

What different functions do different cities have when it comes to clustering?

Answer 8

Larger cities tend to be more diversified and oriented toward services and R&D
Smaller cities tend to be specialized in particular industries

Question 9

Dispersion forces (3)

Answer 9

1. Not all clients are located in the same city
2. Congestion (traffic, crime, lack of space etc)
3. Immobility of land and limited mobility of labor drives up land rents and wages

Question 10

Clustering forces/agglomeration economies (4)

Answer 10

1. Large city
2. Many clients and many ancillary services
3. Thick market for special skills
4. Knowledge spillover

Question 11

3 Reasons for urbanization economies

Answer 11

1. Industrial diversity fosters ideas and innovations
2. Larger variety of input suppliers and potential buyers
3. Variety of job opportunities attracts highly educated workers

Question 12

3 Reasons for localization economies?

Answer 12

1. Knowledge spillovers between firms
2. Access to specialized labour, services and other resources that all firms in that industry require
3. Competitive pressure which promotes innovation and productivity

Question 13

What are two types of external scale economies? + explain

Answer 13

1. Localization economies: Benefits from a larger number of firms in the same industry and in the same location.
2. Urbanization economies: Benefits from a larger number of different industries in the same location.

Question 14

What are external scale economies

Answer 14

The average costs of a firm fall as the output produced in the region where the firm resides increases (cost advantage of large/dense locations)

Question 15

What are internal scale economies?

Answer 15

The average cost fall in the firm’s own scale of production (cost advantage of large firms)

Question 16

What are dispersion forces

Answer 16

Forces inducing economic activity to spread out in space

Question 17

Clustering forces are?

Answer 17

Forces leading economic activity to concentrate in space