Location around big cities as central places

Abstract

Space behaviour is very close to imperfect competition: agglomeration economies lead to increasing returns to scale and physical distance between economic agents and markets causes horizontal product differentiation and prices discrimination in goods markets and in land as a good and as an input. An important target in macroeconomics is the money market analysis, but money market is generally not considered in microeconomic models and hence neither in most spatial models although it affects the location. The main aim of this paper is to introduce the money market in a general equilibrium model to explain the location of consumers and producers around a big monocentric city, where consumers choose optimal quantities of consumption goods, money, land and transport, and households and firms can rationally choose their location in relation to the central market. Results for firms indicate that their locations are generally situated beyond those of households with respect to the central business district, depending on their land needs.