Week 6 Flashcards
new economic theory - paul krugman
we dont look at the local aspects and features enough and how they are affected
helps involve spatial factors into economics
spatial economic theories
the study of spatial economics - of the location of production
von thunenes land rent and use
weber location analysis
central place theory christaller
regional science isard
henderson urban systems
industrial districts marshall
what is neo classical location theory
originated in late 19th century and early 20th
normative theory concerned with what should happen, given certain assumptions, raather than what may happen in reality
spatial modelling and assumptions
explain picewise in location theory
given the complexities of the market, the model tackles economic geography by understanding the basis parameters and then adding more controlled factors to the model
alternative approaches to neoclassical location theory
behavioural-organizational approach
focuses on key importance of corporate organizations and their relations
structural approach
based on marxist theories
critical approaches
basics of von thunens agricultural land use theory
writes “isolated state”
agricultural land use theory that explicity considers space, location, distance
considered the first spatial economic theory
goal: explain agricultural land use patterns, crop allocation around cities
describe von thunens agricultural land use theory
assumes and isolated state
no trade, migration, exchange
crucial variable is transportation cost which depends on distance
all other factors held constant, permitting focus on space and distance
model requires simplyifying assumptions about land and the population
von thunens simpplyfying assumptions: LAND
Isotropic plain (not a realistic model)
the land is flat and movement possible in all directions (no roads)
no barriers to movement
single uniform transportation mode
transport costs are proportional to distance
physical resources are distributed evenly
the land is identical everywhere and in every direction
von thunens simpplyfying assumptions: POPULATION
residents are distributed evenly
residents have identical income, demand, taste
residents are rational
producers and consumers have perfect knowledge and act rationally
producers maximize their profits
and consumers minimize their costs
von thunens “the market place”
in the isolated state:
there is one single marketpalce located at the centre of isotrpoic plain
farmers only sell here
productions costs are the same everywhere
market price is the same everywhere
supply and demand determines market price
perfectly competitive
von thunens “location rent”
mechanism that determines agricultural land use is economic rent
economic rent is the surplus income that can be obtained from one unit of land above what can be obtained from a unit of marginal land
marginal land can only yield a return large enough to cover the cost of bringing it into production
conclusion of von thunens location rent
given all the assumptions, the only basuis for such a differentiation is the distance from the market place between economic rent and marginal land value
therefore the economic rent is a location rent
formula for determining von thunens location rent
LR = Y(m) - Y(c+td)
Lr = location rent per unit of land
Y = yield (qty produced) per unit of land
m = market price
c = production cost per unit
t = transport rate
d = distnace of unit from the market
LR is the profit
Distance (d) is the only modifiable variable
Lr is a function of distance
von thunens location rent curve and its four factors
each agricultural product has a different rent curve and is affected by four factors
market price (determined by supply and demand)
transportation rate (determined by the nature of the product, bulkiness, perishability etc)
cost of production (constant for any good)
yield per unit of land ( assumes to be constant in space for any good)
location rent curve is an inverse function of:
distance
its height (difference between the products market price and its production cost)
its slope ( transportation characteristics of the product)
