LOCATION THEORY

Eduardo F. Bober, Jr.

Special Industry Lecturer
CONSIDERATIONS ON LOCATION?
LOCATION THEORY
* concerned with the geographic location of economic activities.
* addresses the question:
- what economic activities are located where and why?
- Economic activities can be determined on a broad level
(region/metropolis) or on a narrow level (zone, site,
neighborhood, block)
- mostly firms – search for locational advantages
- primary assumptions: agents act on their own self-interests
- profit maximization
* Minimized production cost
* Minimized transport cost
* Maximized sales revenue
- individuals choose locations that maximize utility
 Determinants: Commercial and Industrial Use
A factor which, as propagated by the adage “location, location, location” is considered to be
the foremost determinant in the catalyzing decision to purchase or undertake economic
activity.

> True in the practice of conventional suburban development

> Downside being that a preexistence of excellence in location is invariably associated
with high cost of land acquisition.

> Location advantages are created by proximity to:

* transportation, a waterfront, a slope, a long vista, a pleasant climate, a popular
resort, or a desirable community
> Only method to economically achieve the value added by location is to create it on
inexpensive land through PUD.
 Determinants: Commercial and Industrial Use
TO MAXIMIZE PROFITS
Firms need to locate where they can benefit from both the greatest revenue and from
the lowest costs.
> specialized functions and activities serving the urban market as a whole will
centrally locate.
> firms requiring large sites and those attempting to reduce costs of over-
concentration will be attracted to the suburbs.
> firms locating close together to benefit from complementary will incur lower costs
because of external economies and enjoy higher revenue due to joint demand.
> a satisfactory rather than ideal location is established by zoning and
land use controls.
 Determinants: Commercial and Industrial Use
ON MINIMIZING COST
> price and rent of land fall with increased distance from the CBD.
> wages are higher in the center
- local demand for labor being greater than local supply.
> commuting costs need to be offset by higher remuneration
- transport cost more of a reflection of accessibility than distance
> locations close to junctions, nodes and terminals are particularly favored
maximizing proximity to suppliers and markets.
> modern manufacturing industry relies increasingly on heavy road vehicles
for long distance transportation and incurs lower transport costs on the
fringes of cities than at more central locations.
ON MAXIMIZING REVENUE
Retailing revenue is determined by:
- the size of the shopping catchment area (not just in terms of population)
- purchasing power
Distribution of the day-time population and points of maximum transit (where people
cluster together) are also important.
In the case of offices, the spatial distribution, number and size of client establishments
determine revenue.
Revenue is thus greatest within the CBD and so are the aggregate costs.
- as distance from the center increases, revenue falls and aggregate costs (after
falling initially) rises - this is due to the upward pull of transport costs, which are no
longer offset sufficiently by economies in the use of land and labor.
- only within a fairly short distance from the CBD are commercial users able to
realize high profitability.
INFLUENCING FACTORS: LOCATION CHOICES
1) MARKET: access to high population concentration for market
or product.
2) PRODUCTION COST: inputs
- Labor (cost, availability, productivity)
- Energy & Materials
3) ACCESS TO AND COST OF CAPITAL
4) AGGLOMERATION ECONOMIES
5) ENVIRONMENTAL FACTORS
6) OTHER FACTORS (tax, community development, local amenities)
ASSIGNMENT:
Produce/create an infographics on the early location theories of the
following:
1. Alfred Weber
2. Johann Von Thunen
3. William Alonzo
4. David Ricardo
and of the Central Place Theory of Walter Christaller.
To be contained in 1-short bond paper size each theories. Maximum of
5pages (no cover page). Submission due: April 28, 2023.
THANK YOU. GOOD DAY