In
microeconomics
Microeconomics is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce resources and the interactions among these individuals and firms. M ...
, economies of density are
cost
Cost is the value of money that has been used up to produce something or deliver a service, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it i ...
savings resulting from spatial proximity of suppliers or providers. Typically higher
population densities allow synergies in service provision leading to lower
unit cost
The unit cost is the price incurred by a company
A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture ...
s. If large economies of density exist there is an incentive for firms to concentrate and agglomerate.
Typical examples are found in
logistic systems where the distribution or collection of goods is needed, such as solid
waste management
Waste management or waste disposal includes the processes and actions required to manage waste from its inception to its final disposal. This includes the collection, transport, treatment, and disposal of waste, together with monitor ...
. Delivering, for instance, mail in an area with many postboxes results in overall cost savings and thus lower delivery costs.
Different network infrastructures such as electricity or gas networks show as well economies of density.
Economies of density are not to be confused with
economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of Productivity, output produced per unit of cost (production cost). A decrease in ...
where unit costs are not linked to spatial properties.
See also
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Economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of Productivity, output produced per unit of cost (production cost). A decrease in ...
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Economies of scope
Economies of scope are "efficiencies formed by variety, not volume" (the latter concept is "economies of scale"). In the field of economics, "economies" is synonymous with cost savings and "scope" is synonymous with broadening production/service ...
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Network effects
In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Netw ...
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Economies of agglomeration
One of the major subfields of urban economics, economies of agglomeration (or agglomeration effects), explains, in broad terms, how urban agglomeration occurs in locations where cost savings can naturally arise. This term is most often discu ...
References
{{History of technology
Regional economics
Economics effects
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