Geography Reference
In-Depth Information
transactions costs will have shallow-sloped bid-rent curves. This is because
with high spatial transactions costs the opportunity costs of distance away
from the market location are high, and therefore in order to make equiva-
lent profits a firm must be able to pay much lower land prices. In contrast,
with low spatial transactions costs the opportunity costs of distance are
low, and therefore a firm is able to make equivalent profits a significant
distance away from the market, while paying land prices which are not a
great deal lower than at the market itself.
In Figure 7.1, the associated bid-rent curves for the production of each
respective goods produced by each city are denoted as
BR
XH
,
BR
YH
and
BR
ZH
for the high value goods produced in city
X
,
Y
, and
Z
respectively,
and
BR
XL
,
BR
YL
and
BR
ZL
for the low value goods produced in city
X
,
Y
,
and
Z
respectively. Assuming that there is competition for land at each
location, the land is allocated to the activity which is willing to pay the
highest land price at that location, and this sector can be identified simply
by comparing the bid-rent curves of each sector at each location. The
land prices paid and the sector producing at each location in the global
economy
AB
are given by what is known as the 'envelope' of the individual
local bid-rent curves, and this is depicted in Figure 7.1 in bold.
As cities
X
and
Z
are larger than city
Y
, this implies that there is both a
larger local market and also more competition for each good in
X
and
Z
than in
Y
. The result is that at the central city market locations of
X
and
Z
, land prices are higher for the production of each good
H
and
L
than
at
Y
, and the bid-rent curves for both goods
H
and
L
produced in
X
and
Z
extend further outwards from their city centres than the equivalent bid-
rent curves associated with city
Y
. The economic geography of the global
economy
AB
is such that the spatial production area for good
L
in city
Y
, denoted as
Y
L
, accounts for less than one-third of the total economic
geography of production of the low value good
L
. Meanwhile, cities
X
and
Z
each account for more than one-third of the economic geography of
production of the low value good
L
, with the respective production areas
denoted as
X
L
and
Z
L
. In addition, city
Y
also has a very small local pro-
duction area
Y
H
for good
H
, while cities
X
and
Z
have much larger local
production areas, denoted as
X
H
and
Z
H
, for the high value good
H
.
Figure 7.2 depicts the situation in response to the types of globalizing
and localizing trends discussed above. As we have seen, falling spatial
shipment costs apply primarily to low value goods. This means that the
equilibrium bid-rent curves for the production of these goods becomes
shallower. In Figure 7.2, the shallower sloping bid-rent functions for the
production of low value goods and services
L
imply that such activities
can be profitably undertaken in all locations. This is the spatial economics
application of the 'flat world' thesis. However, this is not the end of the
