Book contents
- Frontmatter
- Contents
- Acknowledgments
- 1 Agglomeration and Economic Theory
- PART I FUNDAMENTALS OF GEOGRAPHICAL ECONOMICS
- 2 The Breakdown of the Price Mechanism in a Spatial Economy
- 3 The Thünen Model and Land Rent Formation
- 4 Increasing Returns and Transport Costs
- 5 Cities and the Public Sector
- PART II THE STRUCTURE OF METROPOLITAN AREAS
- PART III FACTOR MOBILITY AND INDUSTRIAL LOCATION
- PART IV URBAN SYSTEMS AND REGIONAL GROWTH
- References
- Name Index
- Subject Index
2 - The Breakdown of the Price Mechanism in a Spatial Economy
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Acknowledgments
- 1 Agglomeration and Economic Theory
- PART I FUNDAMENTALS OF GEOGRAPHICAL ECONOMICS
- 2 The Breakdown of the Price Mechanism in a Spatial Economy
- 3 The Thünen Model and Land Rent Formation
- 4 Increasing Returns and Transport Costs
- 5 Cities and the Public Sector
- PART II THE STRUCTURE OF METROPOLITAN AREAS
- PART III FACTOR MOBILITY AND INDUSTRIAL LOCATION
- PART IV URBAN SYSTEMS AND REGIONAL GROWTH
- References
- Name Index
- Subject Index
Summary
INTRODUCTION
As a start, it is natural to ask the following question: To what extent is the competitive paradigm useful in understanding the main features of the economic landscape described in Chapter 1? The general competitive equilibrium model is indeed the benchmark used by economists when they want to study the market properties of an economic issue. Before proceeding, we should remind the reader that the essence of this model is that all trades are impersonal: When making their production or consumption decisions, economic agents need to know the price system only, which they take as given. At a competitive equilibrium, prices provide firms and consumers with all the information they need to know to maximize their profit and their utility.
The most elegant and general model of a competitive economy is undoubtedly that developed by Kenneth Arrow, Gérard Debreu, and Lionel MacKenzie. According to this model, the economy is formed by agents (firms and households) and by commodities (goods and services). A firm is characterized by a set of production plans, each production plan describing a possible input–output relation. A household is identified by a relation of preference, by a bundle of initial resources, and by shares in firms' profits.
- Type
- Chapter
- Information
- Economics of AgglomerationCities, Industrial Location, and Regional Growth, pp. 25 - 61Publisher: Cambridge University PressPrint publication year: 2002