1. Industrial Models

2.  Primary industries have to be located near the source of materials  Secondary industries are becoming less dependent on resource location  Location theory: predicts where businesses will or should be located  Location depends on raw materials, labor, transportation, and infrastructure.

3. What businesses want  A decision maker would want to maximize their advantages over competitors, and make as much profit as possible  They have to take friction of distance into account Friction of distance: the increase in time and cost that comes with increasing distance  The further away you send the goods to be manufactured, the greater the friction of distance is

4. Raw Materials and Markets

5. Weber’s Model  Alfred Weber (1868-1958) is the von Thunen of industry  He developed a model for industrial location called the Least Cost Theory  His theory accounts for the location of a manufacturing plant in terms of the owner’s desire to minimize 3 categories of cost: Transportation, labor, and agglomeration

6. Transportation  Transportation is the most important factor  A site must entail the lowest possible cost of moving raw materials to the factory, and finished goods to market Notes: -Truck is the least expensive mode of transport over short distances -Air is most effective for high value, or perishable goods -Shipping is the cheapest form of transportation over long distances

7. Labor  Higher labor costs reduce margin of profit  Companies might do better to locate in areas where labor is cheap, if the price of labor justifies the higher transportation costs

8. Agglomeration  Agglomeration: a substantial number of enterprises cluster in the same area, and share talents, services, and facilities  Ex: office furniture  Big city locations are desirable  However, it also causes higher rents and wages  Leads to deglomeration (leaving urban centers for other locations)

9. Examples of Agglomeration  World Cities: an important city in the global economy Immanuel Wallerstein proposed the World-System Theory that social change in the developing world is linked to economics of the developed world  First tier cities include Tokyo, London, and New York They are all centers of global commerce Demonstrate agglomeration Example: Wall Street

10. Weber’s Locational Theory Triangles Triangle A represents a situation where M is the market, and S represents primary sources Triangle B represents a situation where M is the market, S represents primary sources, and P represents a manufacturing center

11. Assumptions of Least Cost Theory Know all six assumptions  Area is completely uniform (physically, politically, culturally and technologically) - This is known as the isotropic plain assumption.  Manufacturing involves a single product to be shipped to a single market whose location is known.  Inputs involve raw materials from more than one known source location.  Labor is infinitely available, but immobile in location.  Transportation routes are not fixed but connect origin and destination by the shortest path  Transportation costs directly reflect the weight of items shipped and the distance they are moved. -Even if you think Weber leaves much to be desired, he did set in motion a debate on SPATIAL aspects of economic activities

12. Hotelling’s Model  Harold Hotelling (1895-1973) was an economist who built on Weber’s model  He wanted to understand locational interdependence  Asked what two ice cream vendors would do on a beach Said they would begin at opposite ends, and then gradually end up back-to-back Once there, they would be unlikely to move

13. Hotelling Continued  His theory shows that location of one industry cannot be understood without referencing other similar industries  Think about the ice cream example Is standing back-to-back the best place for the vendors if they want to maximize profits? Is that best for the customers? Is that best for visibility?

14. Losch’s Model  August Losch examined where a manufacturing plant could locate to maximize profits  He added spatial influence of consumer demand, and production costs to his calculation Businesses will try to locate within a margin of profitability, and to the left or right of the margin, distance decay will make sales unprofitable

15. Site and Situation  Site factors that influence the location of an industry include land, labor, and capital  Situation factors include access to inputs and access to markets Situation factors are chosen to minimize transportation costs