ECONOMIC GEOGRAPHY

Lecturer: Assoc. Prof. Dr. NGUYEN An Thinh, VNU-UEB

Chapter 2: Principles of economic geography
Lecturer: Assoc. Prof. Dr. NGUYEN An Thinh, VNU-UEB
2.1. Location of Economic
Activities
• Location of primary production: Von Thunen’s Model
• Location of secondary production: Weber’s Model
• Location of tertiary production: Christaller’s theory
Characteristics of Location of Economic
Activities
1.Spatial variation: The location of economic activities varies from
region to region based on a range of factors such as natural resources,
labor supply, transportation infrastructure, market access, and
government policies.
2.Concentration: Economic activities tend to cluster together in
certain areas, such as urban centers or industrial zones, due to the
benefits of agglomeration, economies of scale, and reduced
transportation costs.
3.Specialization: Economic activities are often specialized in certain
regions based on their comparative advantage in producing particular
goods or services, such as agriculture in rural areas, manufacturing in
urban areas, and high-tech industries in knowledge-based economies.
Characteristics of Location of Economic
Activities
4.Competition: Economic activities compete with each
other for resources such as labor, capital, and market access,
which can result in the growth or decline of certain industries
or regions over time.
5.Innovation: Economic activities are often associated
with innovation and technological advancements, which can
lead to the creation of new industries and the displacement
of traditional ones.
Characteristics of Location of Economic
Activities
6.Interdependence: Economic activities are
interconnected and interdependent, with upstream and
downstream industries relying on each other for inputs and
outputs, and global supply chains connecting producers and
consumers across borders.
7.Environmental impacts: Economic activities can
have significant environmental impacts, such as
pollution, deforestation, and climate change, which can
affect the sustainability and resilience of economic
systems and the communities they serve.
 2.1.1. von Thunen’s Model
• Author: Johann Heinrich von Thünen (1783-1850)
• Von Thunen's Model, also known as the Von Thunen's
Agricultural Land Use Model, was proposed by
German economist Johann Heinrich von Thunen in
1826
• The model is a useful framework for understanding
how agricultural land use patterns are shaped
by economic and geographic factors
• Its applications extend beyond agriculture and can be
useful in a range of fields, including land use
planning, transportation planning, and real estate
 2.1.1. von Thunen’s Model
• The model aims to explain
• how the use of agricultural land varies with
distance from the central market in a
hypothetical isolated and flat
landscape.
• how agricultural land use patterns are
influenced by distance to market
and transportation costs
The von Thunen’s
Model
Assumptions:
 all agricultural goods are traded
 land is owned by landlords
 all farmers produce the same good, same
production technology
 freedom of entry into the market
 The von Thunen’s
Model
von Thunen proposed that different types of agricultural
activities would occur in concentric rings around the central
market. The model has four main concentric zones:
1. Market gardening and dairy farming: This zone is closest to
the central market and consists of high-value crops such as fruits,
vegetables, and dairy products that require frequent and rapid
delivery to the market.
2. Forest: This zone is further from the central market and
consists of woodlands used for fuel and construction materials.
3. Extensive field crops: This zone is even further from the
central market and consists of crops such as wheat and barley
that are less perishable and require less frequent transportation.
4. Ranching and livestock grazing: This zone is the furthest from
the central market and consists of livestock grazing lands,
where animals are raised for meat and wool.
Inference of Von Thunen’s Model to
Continental United States
The applications of Von Thunen’s Model
1. Understanding agricultural land use patterns: The Von Thunen's
model is an useful tool for understanding how farmers choose to
use their land based on their proximity to markets and
transportation costs. The model helps explain why certain crops and
livestock are produced in certain areas and why some areas are
more intensively farmed than others.
2. Planning land use: The Von Thunen's model can also be used for
planning land use in rural areas. By understanding the factors that
influence agricultural land use, planners can make informed
decisions about where to locate different types of farming activities.
The applications of Von Thunen’s Model
3. Predicting land values: The model can be used to predict the value
of agricultural land based on its distance from markets and
transportation infrastructure. This can be useful for investors who
are considering buying or leasing farmland.
4. Evaluating transportation infrastructure: The model can help
evaluate the impact of transportation infrastructure on agricultural
land use patterns. For example, building a new highway or
railway line could open up new markets for farmers and
change the way they use their land.
5. Understanding urbanization: The model can also be applied to
understand the impact of urbanization on agricultural land use. As
cities expand and encroach on rural areas, farmers may change
their land use patterns to adapt to the changing market conditions.
• Maximum rents per hectare generated by the von Thunen’s model:
LR = P - C
or
Land rent per hectare =
Output revenue per hectare
– (Non-land payments per hectare
+ transportation costs per hectare)
Land rent gradient (mosaic pattern)

15
Bid-Land rent functions for polycentric
city

16
Hedonic
prices
• Method of calculating the values of amenities and costs of
disamenities.
• Dependent variable: price of land
• Independent variables:
• Indicator (dummy variables) describing neighborhood attributes
• Lot size
• Access to public services
• Proximity to amenity/disamenity
• Coefficients reflect the market value of the characteristics.

17
Thunen model predicts that there
will be negative land rent
gradient, in which land price will
fall directly with haulage distance
in order to exactly compensate for
higher distance transport costs
Assume that price of agro-products (goods) at the market is
100$, transport cost is 1$ per tone per km.
If farmer located adjacent to M, then distance d from the
production location to the market would be zero. As such
farmer will incur no transport costs and all 100$ revenue
can be spent on payment to the land and non-land
production input.
If nonland inputs required payment 50$, the maximum rent
the farmer can pay for land adjacent to M will be 50$.
If at distance 20km, the maximum the farmer will be able to
pay for a hectare of land is 30$ while at a distance of 50km,
the maximum farmer will be able to pay for a hectare of
land will be zero (because beyond 50km, there will be no
products produce and sold to market). Why???
What happened if market price is
increasing? $150 If price increase from 100 to
150$ per tone, mean that
farmers will willing to pay for a
hectare of land adjacent to M
$100 Cost of fixed non-land inputs
is 100$. The intercept of land
gradien therefore moves
$80 upwards from 50 to 100$. At
Increasing market price distance of 20km from M, the
brings forth an increase farmers will be willing to pay
in the quantity of land 80$ rent for a hectare of land
and consequent and at 50km from M the
$50
increase in the quantity farmer will to pay 50$ rent per
of output and sold hectare. Moreover, the
$30 maximum land rent will now
be equal to zero at a distance
of 100km.

M
20km 50km
distance
100km
Effect of reduced transport rates on the von
Thunen
Land rentin transport
Effect of change gradient rates is different
from changes in the output market prices or $100
change in the non land factor payment.
Cost of fixed non-land inputs
At market price of 100$ and non land input
payments of 50$, the maximum the farmer
will be able to pay for land immediately
adjacent to M will be 50$.
If the transport rate t falls from 1$ per tone- $50
km to $0.5 per tone-km, the maximum rent
the farmer will now be able to pay at a
distance of 20 km from M will be $40.
Meanwhile, at a distance of 60km the farmer
will be able to pay maximum of $20 and the M
20km 50km 100km
maximum land-rent will now be equal to zero
at a distance of 100km
 Land competition in the von Thunen
•model
Assume that there are 2 type of
farmers, one produce wheat (lúa mỳ)
and other producing barley (đại mạch).
• Assume that the non-land input
costs for producing both crops are
the same at $50 and that both crops
require 1 hectare of land to be
cultivated to produce 1 tone of
output.
• Land close to market will be
employed in the production of barley
and land further away market will be
employed in producing of wheat
2.1.2. Weber’s Model
• Weber’s Model: also known as the Least Cost Theory,
was proposed by German economist Alfred Weber
in 1909. The model aims to explain the location of
manufacturing industries based on the least cost of
production.
• Where will factories locate that is the lowest cost to
them?
• Like von Thunen’s model (location of agricultural
activities)
Costs of industrial
production
1. Transportation Costs: Firms will choose a location that minimizes the
cost of transporting raw materials to the factory and finished products to
the market. The cost of transportation is affected by distance, terrain,
and mode of transportation.
2. Labor Costs: Firms will locate their facilities where they can find the
cheapest and most abundant labor. The cost of labor is affected by
the skill level, education, and productivity of workers.
3. Agglomeration Economies (refers to the concentration of economic
activity in a particular geographic area): Firms benefit from being located
near other firms in the same industry, as they can share inputs,
knowledge, and infrastructure. This creates economies of scale and
reduces costs.
4. Deglomeration Economies: Industries might then choose to move for
more space in a process called deglomeration or the “unclumping” of
factories due to the negative effects and higher costs of industrial
overcrowding.
 Limitations of the
• theory
Weber's theory also suggests that the optimal location of a firm will
depend on the type of industry. For example, a heavy industry that
requires large amounts of raw materials and energy will be located near
the source of those inputs, while a light industry that requires a highly
skilled workforce will be located near universities and research
centers.
• The Least Cost Theory provides a framework for understanding why
certain industries are located in certain regions and helps explain the
geography of economic activity. However, it has been criticized for
oversimplifying the complex factors that influence the location decisions
of firms and for neglecting the role of government policies, cultural
factors, and historical events.
• Firms will chose a
location in view to
minimize their costs:
– firms seek to minimize
their costs by locating
their production
facilities close to the
source of raw materials
and labor, as well as to
the market where the
goods will be sold
Least-Cost Theory
• Site chosen must consider
the following:
1. Moving raw materials to
factory
2. Moving finished products to
the market
3. Creates a balancing act of
the best location possible
• These are not the case for all
situations
 Assumption
•sUniform/Isotropic Plain: Operates in one area with an uniform plain and
equal transportation paths:
• topography
• climate
• Technology
• economic system
• One finished product is considered at a time
• The product is shipped to a single market location
• Transportation cost may vary as they are a function of the weight of the
items shipped and the distance they are shipped
• Example: Heavy and Far
Assumptions
(cont.)
• Labor is not mobile
• Labor is available in unlimited quantities.
• There is labor at any production site selected
• There is equal opportunity to purchase the product
• The raw materials are:
• At a fixed location
• Market location where consumption occurs:
• At a fixed location
The determinants of industrial
location
The location of industry is driven by four
factors to determine spatially variable
costs

Transportation, Labor, Agglomeration,

Deglomeration
 1. Transportation
•cost
The location of the industry will be located in an area where it ensures the
cost will be lowest for:
• Moving raw materials to the processing location
• Moving finished products to the market
• Costs of transportation are affected by distance the product is shipped and
the weight of the product when being shipped.
• Considered to be the most important factor!
• There are also cases where a company has more than 1 mode of
transportation.
• This is known as break-in-bulk locations.
• Example: San Francisco, California
• Methods of Transport: Ports, Rail, Air, Highway
 2. Labor
•cost
Cheap labor is the most important because the higher labor cost are
the lower a companies profit
• Considered the most expensive factor for LCT
• The profits of a company are reduced as the cost of labor increases
• In some cases an industry may perform better farther away from the
market and raw materials, due to the availability of cheap labor
• Higher labor costs reduce profits, can affect location of industry,
regardless of raw material and market locations
• Example: Outsourcing textiles overseas
2. Labor
cost
• Employers look for:
• Low wages
• Little unionization
• Young employees (Few healthcare costs)
• Female employees (Thought to be less demanding and more
expendable)
• Substitution principle: If an industry moves to a place to access lower
labor costs, even though transportation costs increase is called the
substitution principle
3. Agglomeration
• Agglomeration: the concentration of businesses in one
particular area.
• Also called an agglomeration economy!
• It occurs when there is a demand for services that the population
needs (school, hospitals, grocery stores).
• They provide assistance to each other through shared talents, and
services. Typically results in lower prices!
• When a large number of companies cluster in the same area and can
assist each other through shared talents, services and/or facilities.
• Example: Research Triangle Park
• Example: Michigan Auto Industry and PA steel industry
4. Deglomeration
• When an agglomerated region becomes too clustered or too crowded
from cumulative causation, then there are negative effects
• Pollution, Traffic, Lack of Resources or Labor
• Industries might then choose to move for more space in a process
called deglomeration or the “unclumping” of factories due to
the negative effects and higher costs of industrial overcrowding
• Markets can also become oversaturated with a particular industry
forcing businesses to relocate or shut down
Weight-Gaining and Weight-
Losing
• Weight-Gaining (‘tăng khối lượng’)
• The finished product(s) weight is more than the raw materials
• Cost for shipping the finished product are greater than that of the raw materials
• Industry location would be the closest to the market!

• Weight-Losing (‘giảm khối lượng’) (Also known as bulk-reducing)

• The finished product(s) weight is less than the raw materials
• Therefore, it cost more to ship the raw materials than to ship the finished product
• Industry location would be the closest to the source of raw materials!
In one the weight of the final product is less than the
weight of the raw material going into making the
product. This is the weight losing or BULK-R E D U C I N G
industry.
Ex: Copper production
steel production
 BULK-
•GAINING
In the other the final product is heavier than the raw material that require
transport
• Usually this is a case of a raw material such as water being incorporated
into the product
• This is called the weight-gaining or BULK-GAINING industries
Weight-Losing
Scenario
Location • In this situation the processing
location is between the
1 source and market
• This however is not the best
place to locate the plan because
of the fact that the product is
weight-losing
• Therefore, it cost the company a
great amount of money to
ship the raw materials to the
plan and more than a half of
that to ship the finished
product to market
Location
2 • In this situation the processing
location has been moved
closer to the source
• This caused the cost of
shipping the final product to
be reduced, greatly
• However, the cost of shipping
the raw materials to the
plant is still not the least
it could be
Location • In this situation the processing
3 location is located at the
source of the raw materials.
• And the cost of shipping has
again been reduced from
the previous situation.
• Therefore, the best location for
the plant would be at the
source of the raw materials
Example:Copper Industry in North
America

The Lavender Pit Copper

Mine in Bisbee, Arizona
operated between 1951
and 1974.

Copper mining, concentration, smelting, and refining are examples of

bulk- reducing industries. Many are located near the copper mines in
Arizona
Weight-
Gaining
Scenario
Location • In this situation the plan is
1 located between the source and
the market
• Therefore, the cost of shipping
the raw materials is much
cheaper than that of the finished
product
• And this is because the product
is weight-gaining
Location • In this situation the processing
2 to
plant has been moved closer
the market
• As a result, the cost of the
finished product has reduced and
the cost for shipping the raw
material is at a gradual rate
• Though this location has reduced
the overall cost of
transportation, cost are not at
the least
Location
3 • In this situation the processing
plant is located at the
market
• This causes the cost of shipping to
increase at a gradual rate and
therefore the cost of shipping is at
the least
• Therefore, this is the best location
for the plant is at the market
 Example: Location of Beer
Breweries

Fig. 2 Beer brewing is a bulk-gaining industry that needs to be located near consumers.
Breweries of the two largest brewers are located near major population centers.
How to Use Weber’s
Theory
• Calculate Transport Costs or Finished Product/Mile
• For 1 mile for R1 (6*5) = 30
• For 2 miles for R1 30 x 2 = 60
• Transport Costs
• 11 to M: 4 movements or miles = 280
• Complete Cost
• Site 1: 30 +175+ 280 = 485
Other considerations and limitations for Weber’s Theory
• Labor costs (labor unions)
• Labor diversity (age, sex, education, gender, etc.)
• Labor movement (indeed labor does move and change from place to place)
• Reality of transportation costs
• Land rent (real estate)
• Tax subsidy
• Pollutions
• Long-term availability of resources
• Perishability considerations
• Fragility
• Hazardous materials
• Zoning (residential versus industrial)
• FTAs
• Globalization and Deindustrialization
 What if the costs are all the
•same?
Some industries maintain the same cost of transportation
and production regardless of where they choose to
locate.
• These industries have spatially fixed costs.
• These are often called “Footloose Industries” because they
can locate wherever they want!
• Footloose products are typically small and of very high
value.
• Example: Computer chip industries
Hotelling’s Models
• Hotelling’s Model-Harold
Hotelling (1895-1973): this
economist modified Weber’s
theory by saying the location of
an industry cannot be
understood with out reference
to other similar industries-called
Locational Interdependence
• Losch’s Model-August Losch
said that manufacturing
plants choose locations
where they can maximize
profit. Theory: Zone of
Profitability
 New Influences on the Geography of Manufacturing
• Transportation-intermodal connections where air, rail, truck, ship
and barge connect-eases flow of goods
e.g. container shipping… Break of Bulk points.
New Influences on the Geography of Manufacturing
• Regional and global trade agreements-WTO, Benelux, European
Union, NAFTA, MERCOSUR, SAFTA, CARICOM, ANDEAN AFTA, COMESA,
etc. goal to ease flow of goods by eliminating trade tariffs or quotas
• Energy-coal was replaced by natural gas & oil after WW II-transported
by pipeline or tanker
2.1.3. Central Place Theory
Contents of
theory
1) CPT aims to explain the spatial
organization of human settlements and the
economic relationships between them.

The theory posits that settlements act as

central places that provide goods and
services to the surrounding population.
Contents of
theory
2) Central places are arranged in a
hierarchical manner based on their
size, function, and the range of goods
and services they offer.
Larger and more dominant centers,
known as higher-order centers, provide
a broader range of goods and services
and serve larger market areas.
Smaller centers, known as lower-order
centers, offer a more limited range of
goods and services and cater to smaller
market areas.
3) The theory introduces economic concepts
such as range and threshold to explain the
spatial distribution of central places.

Range refers to the maximum

people are willing distance to
travel towhile access
particular goods or services, a
threshold
represents the minimum number of
consumers required to sustain a particular
goods or service in a given area.
 4)Settlements are located to optimize efficiency and
minimize competition. Larger centers are spaced farther apart to
serve larger market areas, while smaller centers are located closer
together to serve smaller market areas. The theory also assumes a
uniform and homogeneous population, perfect competition,
and a static environment, although these assumptions may not
hold in reality.
5)CPT provides a framework for understanding the
economic organization of human settlements, analyzing market
areas, and making informed decisions about the location of
facilities and services. While it has limitations and simplifications,
the theory has been influential in the fields of urban and
The global urban network according to GAWC.
www.lboro.ac.uk/gawc/.
(Fig 14.8)
What are the assumptions there?
• Homogeneous Population: The theory assumes a population
that is uniform in terms of income, preferences, and
purchasing power.
• This assumption disregards variations in population demographics,
socioeconomic factors, and consumer behavior.
• Isotropic Surface: The theory assumes a flat, featureless
landscape with uniform transportation costs in all
directions.
• This simplifies the analysis by disregarding the influence of terrain,
natural barriers, and transportation infrastructure variations
that can impact settlement patterns.
What are the assumptions there?
• Perfect Competition: The theory assumes perfect competition among
central places.
• In reality, competition can be influenced by factors such as market power,
monopolies, government regulations, and other economic forces.
• Rational Consumer Behavior: The theory assumes that consumers
make rational decisions based solely on minimizing travel costs
and maximizing utility.
• It disregards other factors that influence consumer behavior, such as cultural
preferences, social ties, and non-economic considerations.
• Static Environment: The theory assumes a static environment
without considering factors such as population growth, technological
advancements, changing consumer preferences, or shifts in economic
activities over time.
Applications of
CPT
1)Urban and Regional Planning: Central place theory has been used
as a framework for urban and regional planning.
• It helps in understanding the hierarchy of urban centers, determining the
optimal location of facilities and services, and assessing the spatial
distribution of resources and amenities within a region.
2)Retail Location Analysis: Central place theory has been applied
in retail location analysis to determine the optimal placement of
stores and shopping centers.
• By considering factors such as consumer behavior, market areas, and range
thresholds, retailers can make informed decisions about where to
establish their outlets to maximize profitability and serve the
surrounding population efficiently.
Applications of
CPT
3)Transportation Planning: Central place theory provides insights
into transportation planning by considering the spatial
distribution of central places and their connectivity.
• It helps in understanding the demand for transportation infrastructure, such
as roads, highways, and public transit systems, and in designing
efficient transportation networks to facilitate accessibility between
central places and their market areas.
4)Service Provision: Central place theory is relevant in analyzing
the provision of services such as healthcare, education, and
government facilities.
• It helps in determining the optimal location and size of service centers to
ensure equitable access and minimize travel distances for the
population they serve.
Applications of
CPT
5)Market Analysis: Central place theory aids in market analysis
by delineating market areas and understanding the
competitive landscape.
• It helps businesses assess market potential, target specific customer
segments, and develop effective marketing strategies based on the
hierarchy of central places and consumer behaviors.
6)Rural Development: Central place theory has been applied in
rural development planning to identify the gaps in service provision
and infrastructure in rural areas.
• It helps in determining the need for central places and supporting facilities in
rural regions to improve access to goods, services, and
economic opportunities for rural populations.
Why does hexagon sharp
make the compromise
solution?
The key concepts in
CPT
1. Central Places
2. Range
3. Threshold
4. Hierarchy
5. Market Area
 (1) Central
•Places
Central places are settlements that serve as economic
and administrative hubs for their surrounding regions.
• These central places provide goods, services, and
amenities to the population within their market areas.
• Central places are arranged in a hierarchical order based
on their size, function, and the range of goods and
services they offer.
• The central place hierarchy consists of different levels or
orders of central places. The hierarchy typically includes
the following types of central places:
• Hamlets
• Villages
• Towns
• Cities
Different levels or orders of central
places
• Hamlets: Hamlets are the smallest and lowest-
order central places in the hierarchy.
• They offer basic goods and services that cater to the
immediate local population, such as small
convenience stores, local cafes, or small-scale service
providers.
• Villages: Villages are higher-order central places
compared to hamlets.
• They provide a wider range of goods and services,
including basic retail, primary schools, medical clinics,
and local government services.
• Villages serve a larger population and often function as
Different levels or orders of central
places
• Towns: Towns are larger and higher-order central places that
offer a more extensive range of goods and services
compared to villages.
• They typically have more specialized retail stores, secondary schools,
hospitals, and a broader range of government services.
• Towns serve as centers for surrounding villages and rural areas.

• Cities: Cities are the highest-order central places in the

hierarchy. They serve as major economic, cultural,
and administrative centers for larger regions.
• Cities offer a diverse range of goods and services, including department
stores, tertiary educational institutions, specialized healthcare
facilities, and a wide array of government services.
• They have a significant impact on the surrounding towns and villages
and often attract population and economic activities from a larger
catchment area.
 (ii)
•Range
The concept of "range" refers to the maximum
distance that people are willing to travel to access
a particular good or service from a central place.
• It represents the extent of the market area served by a
specific central place.
• The range is a critical factor in determining the
spatial distribution and organization of
central places within a region.
• It helps define the boundaries of the market area
influenced by a central place and provides insights into
the accessibility and reach of goods and services
for the surrounding population.
• The range is influenced by several factors, including the nature of the
good or service being provided, transportation infrastructure, travel
time, and consumer preferences.
• Different types of goods and services may have varying ranges depending on
their characteristics and the demand for them.
• For example, convenience goods such as groceries or daily essentials
tend to have shorter ranges, as people are willing to travel shorter
distances for these items. On the other hand, specialty goods or
services that are more unique or specialized may have longer
ranges, as people are willing to travel greater distances to
access them.
• It is important to note that the concept of range in central place
theory assumes a homogeneous population and does not account
for variations in consumer behavior or preferences.
• In reality, factors such as cultural differences, income levels, and individual
preferences can influence the willingness to travel and the range of
goods and services.
• Understanding the range is crucial for market-area analysis, as it helps
in delineating the boundaries of a central place's market area and
determining the potential customer base.
• By considering the range, businesses and policymakers can make informed
decisions about the location of facilities, assess market potential,
and understand the competition and trade-offs between central places.
 The
•limitations
It is worth mentioning that the range concept in central place theory
has been criticized for its oversimplification and lack of
consideration for real-world complexities.
• Factors such as transportation costs, variations in population density, and
competition from neighboring central places can impact the actual range of
goods and services in practice.
• Therefore, while range provides a useful concept in central place
theory, it is important to consider it in conjunction with other
factors and local context for a more accurate analysis of market
areas and spatial organization.
(iii) Threshold
• The concept of "threshold" refers to the minimum
number of consumers required to sustain a
particular good or service in a given area served
by a central place.
• It represents the demand necessary to support the
provision of a specific good or service within a market
area.
• The threshold is an important factor in
determining the spatial distribution and
organization of central places within a region.
• It helps define the size and viability of the market area
for a particular good or service and influences
the placement and clustering of central places.
• The threshold is influenced by several factors, including the nature of
the good or service, population density, consumer preferences, and
the level of competition.
• Different types of goods and services may have varying thresholds depending
on their demand and the economies of scale associated with their
provision.
• For example:
• Basic necessities such as groceries or everyday items may have relatively low
thresholds, as they are in high demand and require a large consumer
base to sustain the provision of these goods.
• Specialized or luxury goods and services may have higher thresholds, as they
cater to a narrower segment of the population with specific
preferences and higher purchasing power.
 Limitation
•s
The concept of threshold assumes a homogeneous population and does not account
for variations in consumer preferences or income levels.
• In reality, factors such as income distribution, cultural differences, and demographic characteristics
can influence the demand and threshold for different goods and services.
• Understanding the threshold is crucial for market-area analysis, as it helps in
determining the viability and profitability of providing goods and services within a
market area.
• By considering the threshold, businesses and policymakers can assess the potential customer base,
identify gaps in service provision, and make informed decisions about the location and size of
facilities.
• Real-world markets are often more complex, influenced by factors such as market
competition, pricing, and consumer preferences.
• Therefore, while threshold provides a useful concept in central place theory, it should be
considered in conjunction with other factors and local context for a more accurate analysis of
market areas and economic relationships.
 Threshold and range
•relationship
Threshold and range are interrelated and influence the
spatial distribution of central places and the size of
their respective market areas
• Threshold and Market Size: The threshold represents the
minimum number of consumers required to sustain a
particular good or service within a market area. It indicates
the level of demand needed to support the provision of that
good or service. The higher the threshold, the larger the
population needed to sustain the offering.
• Range and Market Area Size: The range refers to the
maximum distance people are willing to travel to access a
specific good or service. It represents the extent of the
market area served by a central place. The larger the range,
the broader the geographic coverage of the market area.
 Threshold and range
•relationship
High Threshold, Short Range: Demand < Costs
• Goods or services with high thresholds, which require a
significant consumer base to be economically
viable, tend to have shorter ranges.
• This is because a larger population is needed within a
closer proximity to sustain the offering.
• Low Threshold, Long Range: Demand > Costs
• Goods or services with low thresholds, which require a
smaller consumer base to be economically
viable, tend to have longer ranges.
• This is because a smaller population can be spread out
over a larger geographic area and still sustain the
offering.
Threshold and range
relationship
Consequences
• Central places offering goods or services with higher
thresholds tend to be larger in size and located at
higher levels in the central place hierarchy.
• They serve larger market areas but are spaced farther
apart to avoid excessive competition.
• Central places offering goods or services with lower
thresholds tend to be smaller in size and located
at lower levels in the hierarchy.
• They serve smaller market areas but are spaced relatively
closer together to provide accessibility to a
dispersed population.
(iv) Hierarchy
• The hierarchy concept refers to the spatial organization and arrangement
of settlements based on their size, function, and the goods and services
they provide.
• Based on the range and threshold, settlements are organized into a
hierarchical order:
• At the top of the hierarchy, there are larger, higher-order central places that
provide goods and services with a larger range and higher threshold. These larger
settlements offer a wide range of specialized goods and services, such as regional
shopping centers, universities, or specialized medical facilities.
• At the lower levels of the hierarchy, there are smaller, lower-order central places
that serve a smaller range and have a lower threshold. These settlements offer more
basic goods and services needed for everyday life, such as local grocery stores,
schools, or small medical clinics.
(iv) Hierarchy
• The central places are arranged in such a way that higher-order
settlements are relatively spaced apart to minimize
competition, while lower-order settlements are closer
together to ensure accessibility for a larger population:
• This hierarchical arrangement helps to optimize the distribution of goods and
services within a region, ensuring that people have access to the
goods and services they need while minimizing travel distances.
ANNEX. The bid-rent model for a
firm
• Primary with the work of Alonso (1964) and subsequently developed
by Mills (1969, 1970), Muth (1969), and Evan (1973)
• Attempts to cast the von Thunen model, we assume that there is a
market point located at M at which all goods are traded.
• Land and non land production factors are mutually substitutable.
Meaning that a firm producing a particular good we can ask the
firm what it would be willing to pay per unit area such as per square
metre, per acre or per hectare in order to be located at any
particular distance away from M while still achieving a certain
profit level.
Bid rent curve for individual
firm
Rents payable for fixed
and variable coefficients
firms
Land competition in the industry bid-rent
model

Service
sector
Manufactur
ing
activities
Retailing
and
distribution
sector
Urban land allocation for different
sectors
Convex
between
A and B,
ad D and
E

Concave
between
B and D