Economically Southwest Iceland is dominated by Reykjavík and the capital area Icelandic: Höfuðborgarsvæðið. It could be argued that all other towns in the Southwest today function partly as suburbs of Reykjavík. Geographically, however, the capital area is simply at the eastern fringe of a peninsula known as Reykjanes, which juts out from the west coast into the Atlantic Ocean. This peninsula is one of the youngest landscapes in Iceland and is mostly covered by a field of lava, making it very inhospitable away from the coastline. Between Reykjanes and Snæfellsnes in West Iceland is the Faxaflói bay.
Southwest Iceland has historically been considered part of South Iceland, and it was only over the last century or so that it gained the position of absolute dominance over other regions that it has today. The Southwest is currently home to over two thirds of the population of Iceland and in addition to some important fishing harbours, it is the location of most economic activity in Iceland other than primary production.
As in many other countries, there is a level of animosity or at least competition between the capital area and the rest of the country. Some would argue that the "real" Iceland is not found in the Southwest. Nevertheless, it is the area most visited by tourists, being home to popular destinations such as Reykjavík and the Blue Lagoon and with easy access to the Golden Circle.