If you are tasked with writing an analytical essay on urban economics, consider the eleven facts below:
- The core periphery model of urban economics focuses heavily on location of workers and their firms. This model is considered to be two by two by two. The first “two” in this scenario are the two regions. The second “two” are the produce process which includes both skilled labor and unskilled labor. The third “two” are both manufactured and agricultural goods.
- Agricultural goods are tied directly to the land from whence the products come and therefore rely upon the traditional sector. The product is produced at a rate constant with the scale, and relies upon unskilled labor typically found on family farms. Unskilled labor in this regard is immobile. This means that each region relies upon a fixed designation of land and a fixed designation of unskilled labor in order to produce said products. From this, the price of the product is fixed and there is no transportation cost.
- Manufactured goods are those which are part of the more modern production sector. Modern goods have to be produced using skilled labor which can move between two different regions. The modern sector’s production is contingent upon the economies of scale. The amount of manufacturing firms is directly limited by increasing returns. Manufacturing firms each produce one variety of a more modern product and sell different varieties based on customer preference, in order to ensure balanced consumption. Every customer in the manufacturing product sector purchases a small quantity of variety, based on the relative prices. If a particular variety has a lower price, then consumers will purchase larger quantities.
- The price for the modern products is based upon the trade cost and competition cost. If there are higher numbers of firms in a particular area, then there is more competition and consumers will be able to search for lower prices within that particular region. Price of imported items from other regions have to take into account the trade cost, which is the cost of having to transport that product to the new region. This means that imported product varieties are higher priced compared to products produced locally. From this, consumers will buy larger quantities from local manufacturers because of the reduced price and the lack of trade cost.
- The Symmetric Equilibrium is based upon symmetric regions that have equal distribution of their products. In order to remain competitive, the manufacturers from the regions should sell their products to home consumers and non-local firms should mark up the price of their products in order to cover their trade cost, which means they sell less compared to local firms. The symmetric outcome from this is equilibrium due to the fact that there is no incentive for the firms or the workers to relocate their operation. The reason for this is that the two regions have equal mixtures of modern varieties as well as similar average prices, which means that consumers will end up with the same level of utility in both regions.
- With the symmetric equilibrium between two symmetric regions, it stands to reason that if there are three firms in two separate regions, the workers will have the same amount of access to employment opportunities, which means both regions will have the same wage potential. In addition to this, it also means the same customer base for the companies and the same workforce, resulting in the same profits.
- The core-periphery model follows situations where there is unstable or stable symmetric outcome such as when firms relocate. If there was equilibrium and one firm relocated to the other region, then one of two things would The first is that there is a self-correcting swap such that the relocation results in decreased profits from the local manufacturers, who then decide to relocate to the region from whence the new company came. This means two companies traded regions and the outcome is restored in the form of symmetric equilibrium. But if this does not happen, then self-reinforcing relocation takes place. This means that the relocating firm increases their profit, which means the other firms from the original area want to move too to increase their profits, and suddenly all of the firms have grown at the expense of the existing firms in the new region. Unfortunately this results in local-competition effect decreasing, losing profit, and giving way to the relocated firms.
- When trade openness increases and at the same time trade cost decreases, then the size of the local-competition effect will begin to diminish. This results in the profit gap getting closer and closer to zero. Of course, once the trade cost reaches zero there is no longer any local-competition effect and in turn there is no gap.
- The market-access effect changes based on the trade costs. When workers of a relocating firm end up buying more output from existing firms, then they do not have to bear the burden of the trade-cost markup on the goods that they sell in the new region.
- As the amount of trade costs decrease, and at the same time the trade cost mark up decreases, then there are savings in the markups which are the result of relocation diminishing. The result of this is that the cost-of-living effect is smaller. When there is zero trade cost then the cost of living effect is non-existent because of the lack of trade-cost markups.
- When there is an openness that is perfect, there is zero for a profit gap. When there is low trade openness, then the local competition effect will dominate which results in a negative profit gap. When instances such as this arise, there is a stable symmetric outcome. When there is high trade cost and a resulting low openness, then the profit gap is quite large, and as these two effects begin to peter due to increased openness, the existing profit gap will diminish.
Interesting facts, aren’t they? Of course, they are because they are compiled to give you a better understanding of urban economics. That’s why you also need to visit our 20 topics on this issue together with a sample essay. However, if you have troubles with the essay type itself, read the article on analytical essay writing.
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O’Sullivan, Arthur. Urban Economics. Boston: McGraw-Hill/Irwin, 2003. Print.
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Thompson, Wilbur Richard. A Preface To Urban Economics. Baltimore, Maryland: Published for Resources for the Future by Johns Hopkins Press, 1965. Print.