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What can a simpler model that envisages the urban economy as a producer of exports tell us about the organization of cities in competitive equilibrium? By equilibrium here, I mean first a condition whereby no firm or person has an incentive to change the way they participate in the urban economy . The model in this chapter imagines an urban economy taking into account competition in markets for labor and product that organizes the urban economy and structures its relationship with the outside world. The model imagines the urban economy consists of firms in a single industry that produce each the same good for export using constant returns to scale and this industry conforms to the economic notion of a perfectly competitive market. The model tells us about the determinants of city size and production in such an environment. First, the export price must be high enough for firms to profit from producing for export. Second, employment is proportional to output; as export demand increases, so too does employment. A constant unit cost of production means that both price and quantity in the export sector (P1 and Q1) must be exogenous to the model. The model envisages equilibrium in two markets: explicitly a single market for exports (wherein a given export bill is met where profitable) and implicitly a single market for labor inside and outside the urban economy. This model is analytically tractable (unlike the Mills model) in part because it is simple. This chapter is also a foil for models presented in subsequent chapters that are more interesting (but also more complex) because they make different assumptions. By contrasting model outcomes in the later chapters with the outcomes in this chapter, we will be able to see the significance of different assumptions.
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- A Simple Model of a One-Industry Town
John R. Miron
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