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KSU / Engineering / ECON 555 / How does the clustering of firms and workers benefit the firms?

How does the clustering of firms and workers benefit the firms?

How does the clustering of firms and workers benefit the firms?

Description

School: Kansas State University
Department: Engineering
Course: Urban and Regional Economics
Professor: Matthew babcock
Term: Spring 2018
Tags: Economics, Urban studies, and Regional
Cost: 50
Name: ECON555; Exam 1 Study Guide
Description: Exam One study guide for Urban and Regional Economics with Dr. Babcock (ECON555) at Kansas State University. Taken Spring of 2018.
Uploaded: 02/11/2018
4 Pages 66 Views 4 Unlocks
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ECON555


How does the clustering of firms and workers benefit the firms?



Urban & Regional Economics

Exam 1 Study Guide

Be familiar with all of the following questions and concepts. A deeper explanation for each question and answer can be found in the weekly notes that I upload on StudySoup.com. I will put broad answers to each question in blue. I will put where to find a deeper explanation from my notes in green. 

1. One of the reasons for the existence of agglomeration  economies is scale economies in intermediate outputs. Answer  the following:

a. What are the 3 conditions that are required for the  emergence of agglomeration economies from the sharing  of input suppliers? Three conditions must be met in order for  agglomeration economies to be able to share inputs. (ECON555  wk2 notes, page 5, Section I) 


How do urbanization economies differ from localization economies?



b. Explain the following sources of agglomeration  

economies: Each of these goes through the same step-by-step  process in order to take advantage of economies of scale for  production. Production firms locate near their sources of demand. (ECON555 wk2 notes, page 6, Section J)  

i. The New York Dress-Making industry Don't forget about the age old question of What is the ability to share and create meaning through symbolic interaction?
If you want to learn more check out What are the 3 steps of blood clotting?

ii. Movie Production

2. Another reason for the existence of agglomeration economies  is labor market economies. Answer the following:

a. What must be true of the labor market demand of  industries in order for labor market economies to occur? Labor economies can occur in an industry if the labor demand is  unpredictable because the product demand is unpredictable. (ECON555 wk2 notes, page 6, Section K) 


What are the two variables that affect labor cost per unit of output and how are they each related to labor cost?



b. Explain why the clustering of firms facilitates the shift of  workers from unsuccessful to successful firms. The  

Informal Labor Economies Model explains this. (ECON555 wk2  notes, page 6, Section K) 

3. In class we discussed how large cities result in better matching of worker skills and firm skill requirements. Answer the  following: (ECON555 wk2 notes, pages 7&8, Section L)

ECON555

Urban & Regional Economics

Exam 1 Study Guide

a. Using the model discussed on class, write the equation  for the worker's net wage.  

i. Net wage = Gross Wage - (skill gap X unit training cost) b. Assuming the Gross Wage is $12/hour and the unit  training cost is $24, compute the net wage for a skills gap Don't forget about the age old question of What is the definition of a statement of stockholder equity?

of  

1

8 and a skills gap of

1

12 . Which results in a higher  1

net wage? You should come up with 9 when you use the  8

1

skill gap, and 10 when you use the  1

12 skill gap, therefore the 

12 skill gap will result in a higher net wage. 

c. How does the clustering of firms and workers benefit the  firms? How does it benefit the workers? Firms get lower skill gaps and workers get higher wages. 

4. Define/Explain the following terms: (ECON555 wk4 notes, page 10, Section Q) 

a. Define Urbanization Economies. Economies of scale are  internal to several different industries when they locate together  in the same city. 

b. How do urbanization economies differ from localization  economies? Urbanization economies result from increasing the  scale of the city itself, not increasing the scale of a single  industry like Localization Economies do. If you want to learn more check out Why do we have government?

c. Discuss 3 different examples of Urbanization Economies.  (1) Advertising (2) Patent attorneys (3) Insurance (4) Investment  Banker (5) Transportation 

5. Define/Explain the following terms: (ECON555 wk4 notes, page 11, Section S) 

a. Define Shopping Externality. Shopping externalities occur  when the location of one retail store effects the location of other  retail stores.

b. Explain the locational effect of imperfect substitutes. An  imperfect substitute are differentiated goods. That is, goods that  are not only affected by price, but also other product  

characteristics

ECON555

Urban & Regional Economics

Exam 1 Study Guide

c. Explain the locational effect of compliment goods. A  compliment refers to things that are bought on the same  shopping trip because they go together. 

6. Transfer oriented industrial firms select locations the minimize  transport costs. Answer the following: (ECON555 wk4 notes, page 11&12, Section T) 

a. Define Procurement cost and Distribution cost. We also discuss several other topics like What is the definition of sender/source?
If you want to learn more check out What was the great bath in mohenjo daro used for?

Procurement cost is the monetary weight of the input multiplied  by the distance from transferable input source to the factory. Distribution cost is the monetary weight of the output multiplied  by the distance from the factory to the market. 

b. Define the monetary weight of input and output. If  monetary weight of the input is greater than the monetary  weight of the output, then Procurement Cost is greater than  Distribution cost and the firm should locate at the raw material  site. Opposite is true as well. 

c. Using the concepts of procurement cost, distribution  cost, and monetary weights, explain why resource  oriented firms locate at resource sites. In your answer,  discuss the cases of relative differences in physical  weight of input and output as well as relative differences  in transport prices of input and output. See answer b. 

7. The principle of median location can be employed to analyze  the locational decisions of transfer oriented firms with several  input sources and markets. Answer the following: (ECON555 wk4 notes, page 12&13, Section U) 

a. Define the median transport location. A Median Transport  Location is the transport minimizing location because any move  away from this location will increase transport costs for the  majority of consumers so total transport costs increase. 

b. Why does the median transport location minimize  transportation costs? Economies of scale in transport means  the optimal location sites are either raw material sites or market  sites because it's cheaper to make one long haul of either input  or output, rather than a short haul for both input and output.

8. Labor oriented firms locate in cities and regions with low labor  cost per unit of output. Answer the following: (ECON555 wk 4  notes, pages 14&15, Sections W&X) 

a. What are the two variables that affect labor cost per unit  of output and how are they each related to labor cost?  Total cost and Energy sources available.

ECON555

Urban & Regional Economics

Exam 1 Study Guide

b. Explain 4 reasons for spatial variation of labor costs. (1)  Compensating Differences (2) Union Strength (3) Lack of Labor  Mobility (4) Amenities 

c. Explain how amenities affect locational decisions of labor  oriented firms. The more amenities that are offered with a job  at a specific location, the lower the wage will be because people  will chose to go there for the amenities. A location with fewer  amenities (i.e. cold weather in Alaska vs. sunny California) will  have a higher wage to convince people to move there for work.  Other factors can be considered amenities besides weather, i.e.  low crime, good schools, cultural opportunities, etc. 

9. Cities attempt to attract firms by offering them subsidies.  Explain 4 types of inducements. (1) Tax exemptions (2) Industrial  bonds (3) Government loans & loan guarantees (4) Site development (ECON555 wk4 notes, page 16, Section Y) 

10. According to the empirical studies, what effect do state  and local taxes and public services have on location choices? (Handout "Effects of Taxes and Public Services on Location" from class) Local taxes have a strong, negative effect on business growth.  Elasticity is larger for intracity locational decisions. Locations in the  same metro area are better substitutes than locations in other metro  areas. Manufacturing is more sensitive than other types of businesses  to tax differentials within and between metro areas. 

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