Transcript Chapter 7 The City as an Economic Node

Chapter 7
The City as an Economic Node
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Introduction
Urban Economic Functions
The Urban Economic Base
Urban Economic Structure
The Metropolitan Hierarchy
The New Service Economy
Summary
Introduction
• City-forming activities:
– Manufacturing
– Tertiary activities - retail/wholesale
– Producer services
– Health services
– Consumer services
– Transportation
• Benefits of spatial proximity
– Information access
Urban Economic Functions
90
80
70
Manufacturing
60
50
40
Goods
Producing
Service
Producing
30
20
10
0
1940 1950 1960 1970 1980 1992 2002
Update of Table 7.1; 2002 includes agriculture, forestry & fishing
In goods production
Economies of Scale
Generic problem in mfg: How large of a market
to serve? It depends in part on the existence
of opportunities to exploit economies of
scale.
$
No scale economies
AC
Scale Diseconomies
Scale economies
Quantity
Returns to scale: Labor
Labor Units Total Output
1
2
3
4
5
6
7
8
500
1500
2750
3850
4750
5500
6100
6600
Marginal
Output
500
1000
1250
1100
900
750
600
500
Average
Productivity
500
750
917
963
950
917
871
825
Returns to Scale, 1 Factor Input
Increasing
7000
Returns
6000
5000
4000
3000
2000
1000
0
0
Negative
Returns
Diminishing
Returns
Total Output
Marginal
Output
Average
Productivity
5
10
Labor
Units
1
2
3
4
5
6
7
8
Total Total Labor
Average
Output
Cost Labor Cost
500
$20,000
$40.00
1500
40,000
26.67
2750
60,000
21.82
3850
80,000
20.78
4750
100,000
21.05
5500
120,000
21.82
6100
140,000
22.95
6600
160,000
24.24
Average Labor Cost
Assume Labor cost
is $20,000 per year
per worker
50
40
30
20
10
0
0
2
4
6
8
10
Fixed Costs: Assume $100,000
Average Cost of Capital
$100K
Quantity of Output
Average Total Costs
Labor
Units
1
2
3
4
5
6
7
8
9
Total Total Labor
Average
Total
Output
Cost Total Cost
500 $120,000
240.00
1500
140,000
93.33
2750
160,000
58.18
3850
180,000
46.75
4750
200,000
42.11
5500
220,000
40.00
6100
240,000
39.34
6600
260,000
39.39
7000
280,000
40.00
Forces Underpinning Scale Economies
•4 Broad Forces
1. Specialization of manpower & equipment:
The division of labor - internal to a firm (detail)
- among firms (social)
(a) increased dexterity of workers in a given task
(b) savings of time as workers move from one
task to another
(c) scaling capital equipment to individual tasks
with the proper capacity. “Lumpiness” of capital
Forces underpinning scale economies
2. Economies of the large machine
1’ x 1’ x 1’ = 1 cubic foot volume
6 square feet surface
2’ x 2’ x 2’ = 8 cubic feet volume
24 cubic feet surface
Change in volume - 8x, change in surface 4x
A tube: if r = 1, Volume = r2, Surface = d
or volume = 3.14, surface 6.28
if r = 2, Volume = 12.56, surface = 12.56
Change in volume: 4x, change in surface 2x
The “2/3 rule”
Forces underpinning scale
economies
3. Economies of massed reserves
In large scale facilities, multiples of given types
of equipment lessen the chance of an entire
production system being down due to equipment
failure.
4. Economies of large scale purchasing
•forward & backward ripple effects from volume
•lowered shipping costs
“Capital Intensive” Manufacturing
Tends to Exploit Economies of Scale
“Process” industries - petroleum, chemicals
Batch processes - metals, paper, stone-clayglass, rubber & plastics
Line Assembly industries - transport
equipment, instruments, machinery
Advent of “flexible mfg. Systems” reprogrammable equipment
reworking of labor structures
New types of production (Ch. 10)
Interplay of Scale and Technology
• Industrial restructuring - change in MOS –change in the detail division of labor
–change in the social division of labor
–processes of vertical integration and
vertical disintegration
• Vertical disintegration - Boeing
outsourcing; auto assembly industry
• Vertical integration - Chip makers &
computer manufactures (Micron; HP)
Agglomeration: Localized
External Economies of Scale
• “Internal” versus “external” economies
- internal due to 4 broad forces described
previously within the establishment
- external due to savings caused by spatial
proximity of producers
- two broad categories:
(1) localization: within an industry
(2) urbanization: across industries
Examples of Agglomeration
(overheads)
Manhatten garment district
London footwear district
Japanese motor vehicle production
Telephone networks in London
Chemicals complex in Asthabula OH
Ann Markusen’s classification of
Industrial Districts (Marshallian,
Hub-and-Spoke, Satellite Platform)
Ann Markusen’s
Alternative
Industrial
District
Structural
Relationships
Asthabula Ohio Industrial Complex
Ores & Lime
Ferro alloys
Electro Met Co
Div. Of U.C.C.
Oxygen
Linde Air Prod.
Div. Of U.C.C.
Fatty Alcohols
Archer-Daniels
Midland
Fats
Oils
Salt
Detrex Chemical
Industries
U.S. Indust. Chem
Div. Nat.Distillers
Titanium
Metal
Chlorinated
Solvents
General Time
& Rubber
Polyvinyl
Resins
Electro Met. Co. TiCl4
Titanium Plant
Stauffer
Chem. Co.
Titanium &
Zirconium Ores
U.S. Industrial Chem.
Titanium-Zirconium
Titanium
& Zirconium
Metals
? Optimal Size for
Agglomerations (Cities)?
Annual Net Economies
Total Economies
Transportation economies
Power Economies
Labor economies
Education economies
1K
10K
100K
Population
1,000K
Communication Economies
Quantity and Quality of Information
(Toward perfect Knowledge)
• Information flow within and between major
metropolitan areas
• Possibilities of information overload
Ability to Use Information
(Towards Optimal Solution)
Pred’s
Behavioral
Matrix