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.” . pg58 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 industries, as well: He calls them “business clusters.”
Porter’s work has been very influential among city and town governments that argue carefully targeted tax breaks and subsidies can attract investment and create a business cluster in their town, which will subsequently reap the benefits of decreasing costs. Is this argument correct? Be careful, it’s tricky!