Economic geography
All important information from the lectures week 1 to 4,
for the Mid-Term
Consumer choices 2
Summary 4
Production Locations 4
Key Theories in Production Locations: 4
Relaxing Assumptions: 6
Conclusion: 6
Why Are Cities So Great? 6
Jane Jacobs (1961) vs Michael Porter (1989): 7
Summary: 8
When to start your business? 8
Summary: 10
Introduction to Markets: 10
Summary: 12
Why Does Groningen Have an IKEA? 12
Key Concepts: 12
Summary: 13
Why are concert tickets so expensive? 13
Key Concepts: 13
Summary: 15
Why do we export beer and import wine? 15
Key Concepts: 15
Summary: 17
Why are Nike's main suppliers in Asia? 17
Key Concepts: 17
Summary: 18
Why do smart people live in the same places? 19
Key Concepts: 19
Summary: 20
What's new about New Economic Geography 20
Key Concepts: 20
Summary: 22
What's in it for the rural? 22
Key Concepts: 22
Conclusion: 24
, Consumer choices
Economics and Consumer Choices
● Economics studies how people make choices based on their preferences, budget, and
available resources.
● Three core principles in economics:
1. Optimization: People try to make the best choices.
2. Equilibrium: When everyone optimizes, a stable outcome is achieved.
3. Empiricism: Economists seek causal evidence to understand choices.
Consumers’ Problem
● Consumers must balance preferences (what they like) and budget (what they can
afford).
● Example: You have a budget of €600, and you must choose between dinners and
concerts, with each dinner costing €50 and each concert costing €100.
Budget Constraint
● Budget constraint: The maximum amount of goods you can buy with your income,
depending on the prices and your budget.
● Budget set: All possible combinations of goods you can buy within your budget.
Changes in Budget
● Changes in income or prices affect consumer choices:
○ If income increases, the consumer can buy more.
○ If prices increase, the consumer buys less.
○ A discount on concerts increases the consumer’s purchasing power.
Opportunity Cost
● The opportunity cost is what you give up when choosing one product over another. For
example, choosing one concert means giving up a certain number of dinners.
Optimizing Utility
● Consumers aim to maximize utility, which means they want to get the most satisfaction
from their limited resources.
● Decreasing marginal benefit: The more of a good you consume, the less satisfaction
you get from each additional unit.
Equilibrium and Utility Maximization
, ● Consumers find a balance where the marginal benefit per euro spent is equal for each
good. This is where they get the most satisfaction for their budget.
Indifference Curve
● An indifference curve shows different combinations of goods that provide the same
level of satisfaction. Consumers prefer higher curves (more satisfaction).
Demand Curve
● The demand curve shows how much of a good consumers will buy at different prices.
○ The higher the price, the less the consumer will demand (Law of Demand).
Shift vs Movement of Demand Curve
● Shift of the demand curve: A change in demand due to factors like income,
preferences, or the prices of related goods.
● Movement along the demand curve: A change in quantity demanded due to a price
change.
Factors Affecting Demand
● Demand can shift due to:
1. Tastes and preferences
2. Income
3. Prices of related goods
4. Number of buyers
5. Beliefs about the future
Inferior Goods
● For inferior goods, demand decreases as income increases. This is the opposite of
normal goods, where demand increases with higher income.
Consumer Surplus
● Consumer surplus is the difference between what consumers are willing to pay for a
good and what they actually pay.
● It represents the total benefit to consumers from purchasing goods at a lower price than
they are willing to pay.
All important information from the lectures week 1 to 4,
for the Mid-Term
Consumer choices 2
Summary 4
Production Locations 4
Key Theories in Production Locations: 4
Relaxing Assumptions: 6
Conclusion: 6
Why Are Cities So Great? 6
Jane Jacobs (1961) vs Michael Porter (1989): 7
Summary: 8
When to start your business? 8
Summary: 10
Introduction to Markets: 10
Summary: 12
Why Does Groningen Have an IKEA? 12
Key Concepts: 12
Summary: 13
Why are concert tickets so expensive? 13
Key Concepts: 13
Summary: 15
Why do we export beer and import wine? 15
Key Concepts: 15
Summary: 17
Why are Nike's main suppliers in Asia? 17
Key Concepts: 17
Summary: 18
Why do smart people live in the same places? 19
Key Concepts: 19
Summary: 20
What's new about New Economic Geography 20
Key Concepts: 20
Summary: 22
What's in it for the rural? 22
Key Concepts: 22
Conclusion: 24
, Consumer choices
Economics and Consumer Choices
● Economics studies how people make choices based on their preferences, budget, and
available resources.
● Three core principles in economics:
1. Optimization: People try to make the best choices.
2. Equilibrium: When everyone optimizes, a stable outcome is achieved.
3. Empiricism: Economists seek causal evidence to understand choices.
Consumers’ Problem
● Consumers must balance preferences (what they like) and budget (what they can
afford).
● Example: You have a budget of €600, and you must choose between dinners and
concerts, with each dinner costing €50 and each concert costing €100.
Budget Constraint
● Budget constraint: The maximum amount of goods you can buy with your income,
depending on the prices and your budget.
● Budget set: All possible combinations of goods you can buy within your budget.
Changes in Budget
● Changes in income or prices affect consumer choices:
○ If income increases, the consumer can buy more.
○ If prices increase, the consumer buys less.
○ A discount on concerts increases the consumer’s purchasing power.
Opportunity Cost
● The opportunity cost is what you give up when choosing one product over another. For
example, choosing one concert means giving up a certain number of dinners.
Optimizing Utility
● Consumers aim to maximize utility, which means they want to get the most satisfaction
from their limited resources.
● Decreasing marginal benefit: The more of a good you consume, the less satisfaction
you get from each additional unit.
Equilibrium and Utility Maximization
, ● Consumers find a balance where the marginal benefit per euro spent is equal for each
good. This is where they get the most satisfaction for their budget.
Indifference Curve
● An indifference curve shows different combinations of goods that provide the same
level of satisfaction. Consumers prefer higher curves (more satisfaction).
Demand Curve
● The demand curve shows how much of a good consumers will buy at different prices.
○ The higher the price, the less the consumer will demand (Law of Demand).
Shift vs Movement of Demand Curve
● Shift of the demand curve: A change in demand due to factors like income,
preferences, or the prices of related goods.
● Movement along the demand curve: A change in quantity demanded due to a price
change.
Factors Affecting Demand
● Demand can shift due to:
1. Tastes and preferences
2. Income
3. Prices of related goods
4. Number of buyers
5. Beliefs about the future
Inferior Goods
● For inferior goods, demand decreases as income increases. This is the opposite of
normal goods, where demand increases with higher income.
Consumer Surplus
● Consumer surplus is the difference between what consumers are willing to pay for a
good and what they actually pay.
● It represents the total benefit to consumers from purchasing goods at a lower price than
they are willing to pay.
