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Alfred Weber: Theory of Industrial Location
Transcript of Alfred Weber: Theory of Industrial Location
Single Market Manufacturers & Perishable Goods
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Bulk - Reducing Industries
Fresh Fruits, Diary & even Newspapers
Theory of Industrial Location
Inputs vs. Outputs
Distance vs. Weight
German Economist 1909
1: Industries near Inputs
2: Industries near Markets
Outputs Weigh Less than Inputs
Outputs Weigh More than Inputs
After raw materials are processed the finished product weighs less, therefore the processing center is located near the source of the input.
Bulk - Increasing Industry
An Industry that gains volume or weight during production
Single Market Manufacturers
1: Bottling Industries
Soda, Beer, Syrup
2: Car Manufacturers
CHina has excess labor
Therefore labor intensive industries
will move to the surplus of labor.
He formulated a theory of industrial location in which an industry is located where the transportation costs of raw materials and final product is a minimum.
He singled out
two special cases:
Firms with a heavier output will be located closer to market. In order to decrease transportation costs.
Firms with heavier input will be located closer to the raw material. In order to decrease transportation costs.
Does this remind you of
any other model?
New York Garment District
3 Factors to Theory:
Location of Market
Location of Raw Material
"Just in Time" Delivery
Plants producing parts for automobiles locate as close as they can to customers: Most engines, transmissions, seats are all produced hours prior to assembly.
"Proximity to Consumers"
"Proximity to Inputs"
Firms, in order to reduce costs, choose the least expensive mode of transport based on distance and goods being shipped.
The farther something is transported, the lower the cost per mile.
The more break-of-bulk points, the greater increase in transportation costs.
The location where the transfer
among transportation modes
Trucks: Cheapest for short distance transport; especially if the destination can be reached in 1 day. Due to ease of loading & unloading.
Trains: Best for long distance land travel; cost more to load & unload than trucks, but don't have to stop between destinations.
Air: Most expensive, due to fuel. Used
for small bulk and
high value products.
Ships: Best for long oceanic
transport; cheap but slow.
Different steps in
production and/or the change in the importance of situation factors, such as price, my change the optimal location.
Is not bulk reducing.
Does not need to be close to inputs.
Was a luxury good until Henry Bessemer developed a more efficient way of producing steel. (1855)
Steel: Changing Inputs
Southwestern Pennsylvania: Near Inputs_Coal & Iron
Lake Erie: Discovering of the Mesabi Range and transport on the great Lakes.
Southern Lake Michigan: Changes in production necessitated more iron, optimal location was closer to Mesabi Range.
East & West Coasts: Reflect changes in transportation costs, iron increasingly came from other countries. Also more and more scrap metal was being used in large metropolitan areas.
Changes in Global Steel Production
As the markets change so does the distribution of assembly plants.
1. Greater weight increases transport cost.
2. Competition causes firms to minimize costs in order to maximize profits.
3. Markets are in a fixed location.
4. Labor is immobile.
5. Uniformity of physical & cultural landscape.
With these assumptions, the location of industry is driven by 4 factors:
The clustering of industries
The movement away from industry clusters.
(Key to location of an industry)
Substitution Principle: Firms gravitate towards low cost labor, even if faced with greater transport costs, due to greater profit in the long run.
Hence...outsourcing production to foreign countries with lower standards of living.