GEG 100 ONLINE!

Cultural Geography

Outline of Chapter 6
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I. Sectors of the Economy - WHAT is produced in an economy

II. Least cost location theory - WHERE things are produced in an economy

A. Cost minimization is half of the profit maximization equation

B. Cost minimization varies according to the cost structures of particular industries

C. Cost minimization theory

1. Labor-cost minimization
  • e.g., textiles, toys, electronic assembly, maquiladoras

2. Transportation cost minimization—assembly costs plus distribution costs

  • Raw-material orientation (weight-losing industries)
    • e.g., paper, copper or iron ore, steel
  • Market orientation (weight-gaining industries)
    • e.g., soda, beer, glass, bread, mattresses, cement
    • ubiquitous materials
  • Break-of-bulk orientation
    • e.g., oil refining at ports.

3. Agglomeration economies minimize transaction costs

a. Transaction costs
  • Definition
  • Examples

b. Externalities

(1) Localization economies
  • Agglomeration of firms in the same industry
    • Critical mass
  • Results in regional specialization
  • Agglomerative factors include:
    • Specialized subcontractors and business services
    • Specialized skilled labor force
    • Technological spillovers
    • Cheap transportation costs
  • Examples of localization economies include:
    • computers (Silicon Valley)
    • biotechnology (Orange County, CA)
    • finance (New York City)
    • news media and publishing (New York City)
    • entertainment (Hollywood)
    • petrochemicals (Houston)
    • pharmaceuticals (Philadelphia)
    • automobiles (Detroit)
    • steel (Pittsburgh)
    • carpets (Dalton, GA)
    • insurance (Hartford CT, Omaha NE)

(2) Urbanization economies

  • Agglomeration of related and unrelated industries based on transaction cost savings resulting from location in urban areas.
  • Wide array of producer services available in cities.

4. Primary sector location

  • Large land requirements usually lead to nonurban location.
  • Heavy outputs, however, can lead to location near or even in cities.
  • Also affected by environmental conditions and availability of resources.

5. Initial cost advantages, or pure happenstance, can lead to early location of industries

6. Spatial division of labor

7. Life cycle of industries

III. Background on Economic Restructuring of the U.S. and Canadian Economies

A. Job competition
  • Downsizing
  • Automation
  • Global competition

B. We live in the most affluent societies in the history of mankind

C. Structural change from primary-based economy to service-based economy

1. Preindustrial economy

2. Industrial economy

  • Labor productivity
    • Mechanization and Capital goods
    • Economies of scale
      • Horizontal integration
      • Vertical integration
    • Specialization

3. Postindustrial economy (or New Economy, Information Economy)

  • Change in Fortune Top 20 companies
  • Globalization and spatial division of labor
  • Importance of cheap, fast transportation and communication
  • Technological sophistication breeds agglomerations
  • Flexibility

V. Economic Base Model

A. Basic industries

B. Nonbasic industries

C. Regional multiplier

1. Depends on:
  • how much and where workers spend their wages
  • how much companies purchase locally

2. We can define a regional multiplier as:

k = Et /Eb

where,

k = regional multiplier

Et = total regional employment

Eb = regional employment in basic jobs

This is equivalent to the relationship:

Et = kEb

which shows that total regional employment is an outcome of basic employment times k, the regional multiplier.

3. Multiplier cuts both ways

  • New basic industries
  • Business closures
  • Basic and nonbasic industries can come from any sector of the economy.

 

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