The City and Its Hinterland
A competitive industry in the city produces one commodity (soap) demanded by city dwellers and farmers alike. Farmers produce a second commodity (wheat) similarly demanded. Farmers ship wheat to the city in exchange for soap: again absent the uncertainties central to Chapter 9. That market is in competitive equilibrium. Tenant farmers bid up the market rent for land for sites close to the city until the Ricardian rent associated with proximity is entirely spent. Labor moves freely between city (soap production) and farm (wheat production). Labor market equilibrium is established wherein Model 11E incorporates land and labor as factors in agricultural production and therefore allows us to look at factor incomes. I include a non-spatial version, Model 11D, to show the consequences of adding unit shipping rates. I also included three versions of the simpler Beckmann Model because it too incorporates substitutability between land and labor in crop production: 11A (without shipping cost), 11B (one crop with shipping costs), and 11C (two crops with shipping costs). Chapter 11 extends the models in Chapter 10 first by incorporating labor and a production function for the agricultural commodity. In that respect, it can also be seen as akin to Chapter 7 with its repair labor and repair production function. By also introducing a good produced in the city and exchanged for the farm good, Chapter 11 builds on Chapter 9 and 10. As farms vary the intensity of land use, they also alter the geographic density of customers (farm workers) for the city’s product. In this way, the chapter considers how prices in commodity and input markets and the localization of farms are joint outcomes in a competitive market.