The earliest models which sought to explain the spatial distribution of activities were based on micro-economic theory. They took as their central concern two related questions: what is the rationale that regulates the location of activities, and how does land rent or land values emerge from this process? The models which evolved from this microeconomic approach started by adopting the conceptual framework of classical and neo-classical economics.

In this approach, the location of activities is seen as the outcome of a combined market mechanism involving three basic elements: commodities, land and transport. On the one hand, land is required to perform productive operations, or for the satisfaction of residential needs. On the other hand, transport is required in order to move surplus production or labour. A farmer, for instance, wants to sell his surplus in the market-place, and the resident of a city wants to sell his labour where there is a demand for it. The process of exchange involves transportation, either of commodities to the market, or of residents to their place of work.

Land is considered to be a large featureless plain and infinitely available, so that in principle there would be no need to pay for it. What gives land a differential quality is the cost of travel or accessibility, which is the main factor in the generation of land values.