The tendency of producer services to cluster in large urban areas is explained in large part by agglomeration economies.

Question

Quizplus · Accepted Answer

Agglomeration economies refer to the cost savings and benefits that firms can gain by locating near each other, such as access to a skilled labor pool, specialized suppliers, and knowledge spillovers. This creates a positive feedback loop that attracts more firms and talent, strengthening the cluster over time. Urban areas provide the density and diversity required for agglomeration economies to thrive, explaining why producer services tend to cluster there.

The Tendency of Producer Services to Cluster in Large Urban