Location theory: Standard Assumptions
Most theories of economic location start with these main assumptions:
1. The production process for particular goods is uniform, independent of locations. Producing corn requires a certainamount of a particular quality of land, farmmachinery, chemicals, climate, etc. Therefore, some locations aremore suitable for producing corn than others. Factors of production cannot be substituted for one another. For example, superior farm machines cannot substitute for scarce land to grow corn in a big city.
2. The demand for products is separated from the production, or supply, of the products. Corn producers want to put themoney they earn from farming into banks in cities. Bankers in cities want to consume agricultural goods. Therefore, transportation costs affect where goods are produced. If both Iowa and Nebraska have the same amount of corn-producing factors of production, but most of the demand for corn is in New York City, other things being equal, Iowa’s shorter distance to New York makes Iowa the better location for producing corn.
3. Factors of production are immobile. Inhabitants of New York City cannot import Iowa’s cheap land to grow corn locally, and Iowans cannot import New York’s bankers. While some factors (capital, migrant workers) are infactmobile, landandmostnatural resources are not. Theories based on these assumptions generate the clear prediction that, to minimize production and transportation costs, certain locations will specialize in the production of particular goods and services and ‘‘export’’ these goods to other locations.