ECON 3500 Chapter Notes - Chapter 3: W. M. Keck Observatory
23 Feb 2018
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Agglomeration economics the economic forces that cause firms to locate close to one another in clusters aka localization economies generates clusters of firms producing the same product. Sharing intermediate goods, labor pooling, labor matching and knowledge spillovers. Urbanization economies agglomeration economies that cross industry boundaries causing firms of different industries to locate close to one another. Some firms locate close to a competing firm to share an intermediate input supplier. Ex a cluster of dressmakers around a button maker. Assumptions: production is subject to economies of scale cheaper for another firm to mass produce than each firm producing their own intermediate input, face time interaction is required to show what is exactly wanted, modification cost. Average cost of buttons from the perspective of the dressmaker: Another example: movie industry script writers, film processing and editing, set design are intermediate goods needed.
