Definition
The economic base of a geographic area comprises the industries and businesses that are fundamental to its economy. These industries provide essential employment opportunities that support the broader community. Understanding the economic base helps in evaluating the primary drivers of economic activity and growth within a region.
Examples
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Steel Industry in Pittsburgh: Historically, the steel industry has been the economic base for Pittsburgh, with steel mills providing numerous jobs. Each new steelworker contributes to creating additional employment in services such as healthcare, legal services, and retail.
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Technology Sector in Silicon Valley: The tech industry, comprising companies like Apple, Google, and Facebook, forms the economic base for Silicon Valley. The concentration of high-tech jobs spurs growth in supporting industries like real estate, education, and legal services.
Frequently Asked Questions
What is the significance of understanding an area’s economic base?
Understanding an area’s economic base is crucial for economic planning and policy-making. It helps identify which industries are key to the local economy and where to focus economic development efforts.
The economic base impacts community growth by generating job opportunities and attracting residents. For each job created in basic industries, there are additional jobs in supporting sectors, leading to population growth and increased demand for services.
Can the economic base change over time?
Yes, the economic base can change due to various factors such as technological advancement, shifts in global demand, and changes in government policy. For example, Pittsburgh’s economy has diversified from steel to include healthcare and education.
1. Basic Industry: Industries that sell their products or services primarily outside the area, bringing income into the community. Examples include manufacturing, mining, and agriculture.
2. Non-Basic Industry: Industries that provide goods or services primarily to local residents, recycling the income within the community. Examples include retail, real estate, and personal services.
3. Multiplier Effect: The phenomenon where an increase in spending in a local economy generates additional income and further spending, bolstering economic growth.
4. Economic Development: Efforts to improve the economic wellbeing and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.
Online Resources
References
- Richard T. Ely, Ralph H. Hess, “Elements of Land Economics - University of Minnesota”. (1924).
- Edgar M. Hoover, “The Location of Economic Activity”. (1971).
- Gregory H. Wassall, “Economic Base and Local Economy”.
Suggested Books for Further Studies
- Urban Economics by Arthur O’Sullivan
- An excellent resource for understanding various urban economic phenomena, including the concept of economic bases and their importance.
- Economic Development: Theory and Practice for a Divided World by Stuart R. Pomeroy
- This book provides comprehensive insights on economic development and strategies for stimulating job growth.
- Local and Regional Development by Andy Pike, Andrés Rodríguez-Pose, and John Tomaney
- This text delves deeper into the dynamics of local and regional economic development strategies.
Real Estate Basics: Economic Base Fundamentals Quiz
### What elements are included in the economic base of a geographic area?
- [x] Fundamental industries that provide essential jobs.
- [ ] Luxurious industries that attract tourism.
- [ ] Only the non-basic service jobs.
- [ ] Non-working households.
> **Explanation:** The economic base includes fundamental industries that provide essential jobs. These industries support additional services and overall economic growth.
### Which industry traditionally formed the economic base for Pittsburgh?
- [ ] Technology
- [ ] Agriculture
- [ ] Retail
- [x] Steel
> **Explanation:** Historically, the steel industry formed the economic base for Pittsburgh by providing essential jobs and stimulating other local services and economic activities.
### How does an increase in basic industry jobs affect local communities?
- [ ] It leads to a population decrease.
- [x] It generates more jobs in services like healthcare.
- [ ] It causes property values to decline.
- [ ] It decreases local spending.
> **Explanation:** An increase in basic industry jobs generates more jobs in services like healthcare, attracting more people to the community and stimulating the local economy.
### What term describes industries that primarily sell their products or services outside the local area?
- [x] Basic Industry
- [ ] Non-Basic Industry
- [ ] Primary Sector
- [ ] Tertiary Sector
> **Explanation:** Basic industries primarily sell their products or services outside the local area, bringing external income into the community.
### What is one effect called that measures the impact of additional spending in a local economy?
- [ ] Spending Curve
- [ ] Economic Balance
- [x] Multiplier Effect
- [ ] Utility Effect
> **Explanation:** The Multiplier Effect measures the impact of additional spending in a local economy, where initial spending generates further income and spending.
### Can the economic base of a community change over time?
- [x] Yes, due to factors like technological advances.
- [ ] No, it remains the same indefinitely.
- [ ] Only during economic recessions.
- [ ] Irrelevant changes do not affect it.
> **Explanation:** The economic base can change due to factors such as technological advances, shifts in demand, and policy changes, altering the fundamental industries of a locality.
### What distinguishes a basic industry from a non-basic industry?
- [ ] Basic industries are only involved in manufacturing.
- [x] Basic industries bring income from outside the community.
- [ ] Non-Basic Industries engage in export.
- [ ] Basic industries solely offer consumer services.
> **Explanation:** Basic industries bring income from outside the community by exporting their products or services, whereas non-basic industries serve local residents.
### What industry could unexpectedly alter a region’s economic base?
- [x] Technology Sector
- [ ] Local Grocery Stores
- [ ] Domestic Cleaners
- [ ] Car Washes
> **Explanation:** The technology sector, through innovation or major companies establishing presence, can significantly change a region's economic base by creating an abundance of high-paying jobs.
### How is local population growth influenced by an increase in economic base jobs?
- [ ] Population growth decreases initially.
- [ ] There is no change in population figures.
- [x] Population growth increases due to job opportunities.
- [ ] Population growth only affects rural areas.
> **Explanation:** Population growth increases as new jobs in the economic base attract more workers and their families, fostering community development.
### Who benefits directly from understanding the area’s economic base?
- [ ] Tourists
- [x] Local planners and policymakers
- [ ] Internet influencers
- [ ] National Greenhouses
> **Explanation:** Local planners and policymakers benefit from understanding the area’s economic base as it helps in forming effective economic development strategies and directing resources appropriately.
