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Exam 1 study guide

Exam 1 study guide - Chapter 1 Introduction to the Study of...

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Chapter 1: Introduction to the Study of Economic Geography 1) Define & discuss the difference between the concept of absolute location and relative location. Which concept has more economic implications and why? - Absolute location is a geometric construct, designated by longitude and latitude or an address, like your home address. Relative location is the location in relationship to other relevant places. Relative location has more economic implications because an area’s economic value is determined by its proximity to customers, labor skills, or suppliers. Its absolute location has no bearing on the economic value of the site. 2) Define the concept of price elasticity in demand including the difference between elastic, unitary, and inelastic demand. Why is price elasticity important? What is the relationship between price elasticity in demand & spatial interaction functions? Illustrate with a figure. - Price elasticity is the demand for a good or service inversely related to changes in its price. With a price elastic good, the percent change in the quantity demanded is greater than the percent change in price. A price inelastic good’s percent change in the quantity demanded is less than the percent change in price. A price unitary good means the percent change in the demand for the good is equal to the percent change in price. Price elasticity is important because it helps us determine how much the demand in a market will be vary with a change in price. A good’s elasticity in demand to an increase in price could determine the failure of a certain market location (the spatial interaction.) Distance acts a spatial price on demand.
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3) Explain the reasons for economies of scale in production and those for diseconomies of scale in production. - Economies of scale are a decrease in the average cost with an increase in production. Diseconomies of scale are the increase in average costs as production of a good or service increases. Economies of scale can occur because of -reduction in transaction costs -more experience at production -more market power -fixed costs are spread. Diseconomies of scale can occur because -machine bottlenecks that overload production lines -large production runs are less flexible and more vulnerable to market changes. -each higher level of output must be shipped farther distances. Absolute Location A geometric construct; designated by at least 2 directional coordinates. Agglomeration A geographical concentration of people or industries. Agglomeration economies of scale Decreasing avg. costs that occur because of the lowest costs of spatial interaction within a geographical concentration. Agglomeration diseconomies Increasing avg. costs associated with a geographical concentration.
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