Chapter 2: Why Do Cities Exist?

Cities Exist because it is efficient to produce some goods on large scale, and in this chapter, cities exist because the benefits associated with concentrated production more than offset the costs of living in a high population density

A Region Without Cities

This model provides a list  of assumptions that together preclude the development of cities. A region only produces and consumes two goods: shirt and bread. People use land to grow raw materials and take time to produces it. Travel within the region is by foot. The following assumptions together preclude urban development

1.      Equal productivity. All resident are equally productive at producing bread and shirts

2.      No scale economies in production. The amount of bread produced per hour is independent of the volume produced

3.      No scale economies in transportation. The transport cost per unit shipped per mile is independent of the volume shipped

This assumptions eliminate the possibilityof trade. There are no advantages from trade or centralized production, so every household in the region will be self-sufficient. The higher demand for land at that location would bid up the price of land, and household living in the concentrated would be worse off than those living elsewhere. In this equilibrium, there would be costs from concentrated production ,m but bo benefits, so there would be no cities.

TRADING CITIES

Trading cities developed to facilitate trade between people in different parts of a region

Comparative Advantage Generate Trade

If the assumptions in region without cities is relaxed, one part of the region may have a comparative advantage in shirt production, and the other part may have a comparation advantage in bread production. Its possible-but not certain-that comparative advantage will cause specialization and trade

Trade between the two household will be beneficial if the transportation costs involved in trading aren’t too large. And household in the two region will specialize and trade, exploiting their comparative advantages to increase consumption.

Although there is now specialization and trade, there will not be any cities. Based no scale economies in transportation assumption, household in two region will engage in direct trade.

Scale Economies in Transportation and Trading citties

To fully exploit scale economies in transportation, a trading firm must collet and distribute a large volume of output. A trading firm will locate at a place convenient for the collection and distribution of  goods. The location decision of traders cause the development of market cities. People employed by the tradingfirm will live near the marketplace to economize on commuting cost and will bid up the price of land near the market place. The population density around the marketplace will be higher than in the rest of the region.

FACTORY CITIES

If we drop the assumption of constant return to scale and introduce scale economies in the production of shirt, factory production may replace home production, causing the development of factory cities.

Scale Economies and the Shirt Factory

As the volume of production increases, the labor required to produce one shirt decrease. Scale economies arise for two reason:

1.      Factor specialization. The specialization of labor increase productivity because (a) a worker productivity increases with repetition and (b) a worker spends less time switching from one production task to another

2.      Indivisible input. An input to the production process is indivisible if the input has a minimum efficient scale.

A Factory City

The factory city develops because two conditions are satisfied. First, agricultural productivity is high enough that worker outside the city can generate enough food to feed themselves and have enough left over to feed the shirt worker in the city. Second, scale economies are large relative to travel costs.

LIMIT TO CITY SIZE: COMMUTING COSTS

In this point, we assumed that the wage paid to factory workers is independent of city size. But in fact, the wage paid to factory workers wil increase as the city grows because bigger cities have longer commuting times. The factory must compensate workers for longer commutes, so the wage will increase as the city grows. As the wage increase, so does the cost of factory shirts relative to the cost of homemade shirts.

HISTORICAL INSIGHT: A BRIEF HISTORY OF WESTERN URBANIZATION

This part of the chapter takes a historical prespective, dicussing how changes in technology cities to  grow and shrink, and eventually caused urbanization aroun the world.

The First Cities

Most agree that the first cities served both religious and defensive purpose.

Consider first the defensive city. The people working in fortified storage facilities, will live near the facility, generating a place with a relativity high population density, a small city. This is the theory of the defensive city: the first city developed because of scale economies in the storage of agricultural surplus.

Consider next the religious city, the development of the first cities coincided with development of large scale religion. The small shrines in home and village were replaced by large tamples at central location and caused the development of a place with relatively high population density, a city. This is the theory of the relihious city: the earliest cities developed because of scale economies in the provision of religion.

The centralization of power during the mercantile period caused the development of administrative cities and reduced trede barriers. Combined with efficient ocean travel, this resulted in the development of trading cities.

The rapid urbanization in the nineteenth and twentieth centuries was caused by the industrial revolution and the associated innovations in agriculture, transportation, and manufacturing.