Question

Different types of cities emerge under different circumstances. For each of the following cases explain the axioms of urban economics and the economic market forces, which cause a city of a particular type to develop.

Backyard production - no cities.

Trading city.

Factory city.

Processing city

Innovation city.

Answer 1

Backyard production - No cities

The backyard production refers to a region without cities.Cities exist because individuals are not self sufficient.If everyone could just produe what he needs and consumes it then,there would no reason to live in a city.

The backyard production assumes that everyone is equally productive,there is a constant returns to scale in exchange and there is constant returns to scale in production. Together,it eliminates the possibility of exchange and the absence of exchange would result in uniform distribution of population as they dont need any benefits fromm others so no city would be present.

Trading City

In a trading city,comparative advantage is present which leads to specialization and people trade it to others.Trading firms emerges when there is economies of scale associated with exchange and trade which will cause the development of a trading city.The workers in these cities produce goods and the trading firms provide them with insurance,credit,investment opportunities,various services such as banking and legal.Trading firms would be located where they can efficiently collect and distribute large volumes of output to fully exploit scale of economies.

Factory city

The factory city uses the factors of production such as machinery and capital and then employ labors in specific tasks which increases their specialozation which promotes higher output per worker and lowers the production costs.

In factory cities,workers have predetermined wages and labor is considered to be perfectly mobile so that utility of a city worker is equal to rural worker.As per 1st axiom,a factory must pay its workers enough to make them indifferent between working in a city and in a rural area. The factory city develops around one factory.workers save their transportation cost by living close to the factory and the market area of a factory city is the area over which it underprices the home production.

Processing city

The processing cities are developed around the processing factory that takes in the input.The processing cities are transfer oriented firms and the their location factor depends upon the cost of transporting inputs and outputs.The firm will choose location that will minimize total transport cost.

The people who work in these cities live nearby to economize on commuting,resulting in a place with very high population density.These are resource oriented industries such as mining cities and steel cities.Resouce oriented firms has high costs for transporting its input rather than transporting the output to the factories so the factories are closer to inputs.

Innovation City

These cities are the centres of innovation because they generate knowledge and exchange the knowledge and innovative ideas among the innovators.

The key assumption here is that innovation is facilitated by collaboration.If the number of people who share the knowledge are large,the payoff to innovation would be higher.The equilibrium is achieved when the payoff from innovation is equal to the wages,then the workers would no longer have an incentive to switch from self-sufficiency to innovation.The productivity of Innovation depends upon interaction between educated and creative people.