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Economy

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A system of production, distribution, and consumption

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Primary Sector

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-Extraction or harvest of natural resources -Countries where the primary sector drives the economy are considered "subsistence" or "pre-industrial -Mining, agriculture, fishing, forestry

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Secondary Sector

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-Process, transform, fabricate or assemble raw materials -Reassemble, refinish, or package manufactured goods -Manufacturing, processing (food processing, steel making, textile manufacturing, power production, construction

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Tertiary Sector

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-Involve the sale and exchange of goods and services to individuals and businesses -Activities link producers to consumers -Includes wholesale and retail sales, commercial services (accounting, advertising, marketing) and personal services such as entertainment

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Quaternary Sector

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-The growth in technology and business leads to specialization of services -Handling and processing of information and capital -Includes medicine, law, education, investment and finance, research and development, computer technology

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Quinary Sector

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-Activities involve facilitating complex decision making and the advancement of human capacities -Includes business executives, government officials, research scientists, financial and legal consultants

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Commodity Chains

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These things trace the networks of labor and production of a given item from the extraction of raw materials to the consumption of the product. -Raw materials -Processing or manufacturing -Distributing -Selling -Consuming

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Vertical integration

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One company controls all the businesses along a commodity chain, thus minimizing costs -Andrew Carnegie pioneered this, bringing coal and iron mines, steel mills, railroads into his US Steel empire

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Horizontal integration

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Absorption into a single firm of several firms involved in the same level of production and sharing resources at that level

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Economic rationality

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People make rational, self-interested economic decisions in determining: -Location of economic activities -How much and what to produce -How much and what to purchase

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Law of Supply and Demand

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Market equilibrium occurs at the intersection of supply and demand and determines the price of land, goods, services, and wages.

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Economy of Sale

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Achieved through reductions in cost per unit due to increased production, realized through operational efficiencies.

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Fordism

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Mass production, assembly-line techniques, organizational management, higher wages, etc. (i.e., modern-day corporate business)

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Neo-Fordism

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Addition of "flexible" production, distribution, and marketing systems. Use of computers, just-in-time production/ vertical disintegration.

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Adam Smith

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The "invisible hand" of competition, efficiency of the market place, laissez-faire economics

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Free Market Systems

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Capitalism, laissez-faire, free enterprise

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Planned Economies

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Mercantilism, socialism

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Absolute Advantage

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Smith's idea that a given country can produce some good cheaper than another country.

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Comparative Advantage

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Countries benefit from specializing in production of certain goods and trading for other goods, regardless of whether they enjoy an absolute advantage in the goods they produce.

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Economic Rent Theory

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There are three types of land: no rent land, marginal land and optimal land. This is the value of the difference in productivity between any given piece of land and the poorest piece of land producing the same goods (e.g. bushels of wheat) under the same conditions (of labor, capital, technology, etc.). Labor and capital improvements increase the value and rent of land.

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Alfred Weber's Theory of Least-Cost Industrial Location

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Industrialists determine locations of "least cost" for their plants by weighing the costs of transportation, labor, agglomeration and deglomeration.

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Weight Gaining

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Industries make a product that is heavier than the inputs. They locate near markets. Example: concrete

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Weight Losing

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Industries use a large volume of raw materials , but the finished product is relatively light. Thus processing occurs near the source of raw materials to minimize transportation costs. Example: diamonds

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Labor distortion

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Sources of cheap labor may make up for the cost of long distance transport. Example: garment industry

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Maquiladoras

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Factories on the south side of the US-Mexico border (outsourcing). Produce cheap goods for American consumers and provide employment for 600,000 Mexican workers (mostly women).

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Break-in-bulk Point

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commonly, a transfer point on a transport route where the type of carrier changes and where large-volume shipments are reduced in size.

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Agglomeration

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Producers often cluster, frequently in major cities, because proximity can lead to savings.

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External economies

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Proximity to other industries allows access to existing labor pools, markets, etc. Thus a company gains advantages beyond its own organization and production methods.

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Localization economies

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When companies within a specific industry cluster, they create a demand for specialized suppliers and services, skilled labor, technology spillovers

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Economic Base

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Industries that supply markets outside of the region are critical as a foundation - workers in the "base" industry need services, creating a multiplier effect.

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Regional Multiplier

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The number of jobs created by the arrival of a new job in the "basic" sector.

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Deglomeration

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Excessive agglomeration can lead to high rents, wages, and transportation costs that negate cost-savings of agglomeration. Example: Detroit

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Transnational Companies

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Companies that participate not only in international trade but also in production, manufacturing, and/or sales operations in several countries

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Flexible Production

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Modern technology and communication (Neo-Fordism) has allowed TNCs to mass produce goods while quickly responding to shifts in demand

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GDP

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Estimate of total market value of all goods and services produced within a country in a given year.

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GNI

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The total income of a country, including worldwide production.

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The Human Development Index (HDI)

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Economic: GDP per capita Social: adult literacy, education levels, gender development index Demographic: life expectancy at birth

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Rostow (Modernization) Model

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According to the Rostow Modernization model, each stage is a function of productivity, economic exchange, technological improvements, and income. Economic growth occurs when advancing from one stage to another. 1. Traditional Society 2. Transitional Society 3. Take-off 4. The Drive to maturity 5. High Mass Consumption

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Immanuel Wallerstein's World-Systems Theory

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The world system began with the rise of western Europe to world supremacy in the years from 1450 to 1670. Its capitalist economy emerged through: Commercial agriculture Colonial empires International trade These mechanisms redistribute resources from the periphery (and semi-periphery) to the core. Thus, development requires underdevelopment elsewhere.

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Cost Minimizing

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The _____ location for any economic activity depends on what it is producing. Different economic activities have different cost structures.

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Transaction costs

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Additional costs of purchasing or selling a good or service beyond its actual price and transportation costs. Includes identifying buyers and sellers, finding and attracting skilled workers and investors, working our technological specifications and delivery schedules with parts suppliers and customers, learning new technologies and acquiring info and finally, dealing with delays.

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Externalities

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Effects that are external to any one firm but internal to the cluster as a whole

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Localization Economies

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This type of agglomeration can occur in an area as small as a few city blocks or as large as a metropolitan area. Eg. Lace in Brussels, Beglium; finance in NYC; fashion in Milan

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Technological Spillovers

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Technological, scientific and business information that passes among people and companies. "Being in the loop"

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Urbanization economies

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Cost-saving externalities derive from an in6crease in the size of the place and accrue to most firms in most industries

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Producer services

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Engineering firms, advertising agencies, printing shops, accounting firms, corporate law firms, temporary employment agencies, freelance editors...etc

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Spatial division of labor

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When different stages of production can be spatially separated, with each located to minimize its own particular cost structure ie. Apple

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Nonbasic Industries

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Produce mainly for the local market, supplying the needs of the region's inhabitants and businesses

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Footloose industries

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Industries that can shift easily based on cost of labor

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Regional multiplier

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Money brought in from outside to employ workers in the basic industries and each job created in the base sector creates more jobs in the nonbasic sector

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Modernization

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-1940s-1960s -Progressive stages of economic growth, economic structural change, trickle-down economics -Investment, substituion of capital for labor, technology transfer, large-scale industrialization projects

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Dependency

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-1970s -Human welfare, core-periphery model, circular and cumulative causation, neocolonialism, bottom-up economics -Small-scale and rural enterprises, import substitution, nationalization

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Neoliberal Counterrevolution

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-1980s -Free market economics, transition economies -Privatization, foreign direct investment, reduced role of the state, free trade, currency devaluation

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Sustainable Development

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-1990s -Global environmental change, environmental economics, women and development, children and development -Partnership with developed countries, foreign direct investment, market mechanisms for environmental regulation, resource conservation, renewable resources, loads to women and very poor, women's and children's rights, appropriate technology

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Polarization Effects

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Reinforce growth in the core at the expense of the periphery

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Circular and Cumulative Causation

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Forces set into motion a squence of other fores that create a self-sustaining snowball effect. Capital. Labor. Innovation and Services.

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Stage One

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The preindustrial structure of independent local centers with small market areas and little interaction.

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Stage Two

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Early industrialization brings concentration of investment, wealth and power into a single, strong core. The periphery provides raw materials and labor to the core and the core provides manufactured goods to the periphery. The net result is a draining of wealth from the periphery to the core.

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Stage Three

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As industry develps, the core remains the dominant center, but regional subcenters begin to emerge. The core and regional subcenters exchange manufactured goods and services while continuing to receive raw materials and labor from the periphery.

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Stage Four

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Ultimately a mature and functionally interconnected space economy emerges in which the periphery has been absorbed into nearby metropolitan economies.

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Neocolonialism

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Initial dependence on colonial mother countries set into motion a type of economic development that continues to render them economically dependent

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