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- firms locating close together to benefit from complementary will incur lower costs
because of external economies and enjoy higher revenue due to joint demand.
> since there is a high degree of inertia, most firms find it difficult to
adjust their locations to the optimum.
> a satisfactory rather than ideal location moreover is established by
zoning and land use controls.
LOCATIONAL DETERMINANTS: Commercial
and industrial use
COST
- price and rent of land fall with increased distance from the CBD.
- wages are higher in the center
- local demand for labor being greater than local supply.
- commuting costs need to be offset by higher remuneration (transport
cost more of a reflection of accessibility than distance)
- locations close to junctions, nodes and terminals are particularly
favored maximizing proximity to suppliers and markets.
- decentralized shopping centers are being developed following road
improvement and increased car ownership.
- modern manufacturing industry relies increasingly on heavy road
vehicles for long distance transportation and incurs lower transport
costs on the fringes of cities than at more central locations.
LOCATIONAL DETERMINANTS: Commercial
and industrial use
REVENUE
Retailing revenue is determined by the size of the shopping catchment area or
hinterland, not just in terms of population but in terms of purchasing power
Distribution of the day-time population and points of maximum transit (where
people cluster together) are also important.
In the case of offices, the spatial distribution, number and size of client
establishments determine revenue.
Revenue is thus greatest within the CBD and so are the aggregate costs.
- as distance from the center increases, revenue falls and aggregate
costs (after falling initially) rises - this is due to the upward pull of
transport costs, which are no longer offset sufficiently by
economies in the use of land and labor.
- only within a fairly short distance from the CBD are commercial
users able to realize high profitability.
Early Location Theories and
Central Place Theory
Location Theory
• Early location theory was concerned with agricultural land use,
as modeled by Johann von Thünen and with industrial location
theory by Alfred Weber.
• Modern location theory has been concerned with the real
individual, rather than with rational economic man reflecting the
influence of behavioral geography.
• David Ricardo is known for his differential rent theory based on
fertility but he also gave "situation" as a possible cause of rent.
• William Alonso extended the von Thünen model to urban land
uses. His model gives land use, rent, intensity of land use,
population & employment as a function of distance to the CBD.
David Ricardo
• David Ricardo (19 April 1772 – 11 September 1823) was an English
political economist, and was one of the most influential of the classical
economists. His most famous work is his Principles of Political Economy
and Taxation wherein he discussed his theories on labor value, RENT and
comparative advantage.
• Ricardo is known for his differential rent theory based on fertility but he also
gave "situation" as a possible cause of rent.
• “If all land had the same properties, if it were unlimited in quantity, and
uniform in quality, no charges could be made for its use, unless where it
possessed peculiar advantages of situation”.
• Coined the term Location rent (land value), which is economic rent
minus the costs associated with transporting products to market
Johann Heinrich von Thunen
L = Y(P − C) − YDF wherein…
L: Locational rent (in DM/km2)
Y: Yield (in t / km2)
P: Market price of the crop (in DM / t)
C: Production cost of the crop (in DM / t)
D: Distance from the market (in km)
F: Transport cost (in DM / t / km)
• Simplified assumptions:
• The city is located centrally within an "Isolated State."
• The Isolated State is surrounded by wilderness
• The land is completely flat and has no rivers or mountains
• Soil quality and climate are consistent
• Farmers in the Isolated State transport their own goods to market via
oxcart, across land, directly to the central city. There are no roads
• Farmers behave rationally to maximize profits.
Johann Heinrich von Thunen
• Considered Transportation cost as the direct function of the weight of the item
and distance shipped.
• He asserted that “all else being equal, manufacturers will locate their plants either
at the market or the source of the input depending on whether or not the final
product gains weight or loses weight in the manufacturing process”.
Fig. 1 Situation in which the processing plant is located somewhere between the source and
the market. The increase in transport cost to the left of the processing plant is the cost of
transporting the raw material from its source. The rise in the transportation cost to the right
of the processing plant is the cost of transporting the final product. Note the line on the left
of the processing plant has a steeper slope than the one on the right because the raw
material is heavier than the finished good. Fig. 2 Situation if the processing plant is moved
closer to the source of raw material. Note that the transport cost of the final product
delivered to the market is lower than in the previous location. The optimal location of the
processing plant is at source of the raw material, as shown in Fig. 3.
Weber’s Weight-Losing case
Transportation
cost for the
product delivered
to the market will
be lowest of all if
the processing
plant is located at
the source of the
raw material.
Weber’s Weight-Gaining Case
The final product is heavier than the raw materials that requires
transport
The weight gaining case is illustrated in Figs. 4, 5 and 6. The optimal location
of the processing plant in this case is at the market.
Weber’s Weight-Gaining case
Transportation cost
for the product
delivered to the
market will be lowest
of all if the
processing plant is
located at the
market.
Weber established that firms producing goods less bulky than the raw
materials used in their production would settle near the raw-material source.
Firms producing heavier goods would settle near their market. The firm
minimizes the weight it has to transport and, thus, its transport costs.
William Alonso
• Extended the von Thünen model to
urban land uses.
• His model gives land use, rent, intensity
of land use, population and employment
as a function of distance to the CBD of
the city as a solution of an economic
equilibrium for the market for space.
• He postulated that there is an inverse
relationship between transportation
cost and rent such that if transportation
cost is high, then the rent is low.
• He developed the "Bid-Price Curve": A
set of combinations of land prices and
distances among which the individual is
indifferent (i.e. satisfied with the
combination of land price as well as the
distance at some point).
Walter Christaller CPT extends the idea to the case
where there is a hierarchy
Central Place Theory (ranking order) of cities as well as
a distinction between urban and
Analyzes the size distribution rural areas.
and firm composition of cities CPT is based on the idea that
A geographical idea that different types of firms have
seeks to explain the number, different market areas and that
size and location of human cities are composed of these
settlements in an urban firms.
system – A market area is the area over
Settlements simply function which a firm can under price its
as „central places‟ providing competitors
services to surrounding – Size depends on the relative
areas. production costs of firms, the
cost of transportation, and the
level of demand
Central Place Theory-W. Christaller
• A Central Place is a settlement which provides one or more services for the
population living around it (Ranking order of goods and services).
• Simple basic services, i.e. food, household items (things that replenish frequently)
are said to be low order
• Specialized services (e.g. computers, universities) are said to be of high order.
• Having a high order service implies there are low order services around it, but
not vice versa.
• Settlements which provide low order services are said to be low order settlements.
Settlements that provide high order services are said to be high order settlements.
• The minimum population size required to profitably maintain a service is the
threshold population.
Number of Places 20 9 4