1.3.

a. In the nineteenth century, economist Alfred Marshall wrote about decreasing cost industries, writing in his Principles of Economics (available free online) that "when an industry has thus chosen a locality for itself. . . . [ t] he mysteries of the trade become no mysteries; but are as it were in the air."

In Chapter 10, we had a concept for benefits that are not internal to a firm but are "as it were in the air." What specific concept from Chapter 10 is at work in a business cluster?

b. In the twenty-first century, economist Michael Porter of the Harvard Business School writes about decreasing cost indus tries, as well: He calls them "business clusters."

Porter's work has been very influential among city and town governments that argue care fully targeted tax breaks and subsidies can at tract investment and create a business cluster in their town, which will subsequently reap the benefits of decreasing costs. Is this argu ment correct? Be careful, it's tricky!

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