1 / 13

URBAN ECONOMICS

URBAN ECONOMICS. SPRING 2010. URBAN LOCATION PATTERNS STATIC ANALYSIS. Microeconomics : What is produced ? How much is produced ? At what price is it produced ? Urban economics : Where do people choose to live ?

eltonj
Download Presentation

URBAN ECONOMICS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. URBAN ECONOMICS SPRING 2010

  2. URBAN LOCATION PATTERNSSTATIC ANALYSIS Microeconomics:What is produced? Howmuch is produced? At whatprice is it produced? Urban economics: Where do peoplechoosetolive? How do pricesandquantityproducedvaryspatiallywithin an urban area?

  3. Land Market • Highly regulated • Land market determines both: - What is produced at a particular site; -How much is produced (per unit of land).

  4. Land Market • The standard urban spatial model is known as the “monocentric city model”. • It is based on the assumption that the city revolves around a single center. • The single center is called: “Central business district” (CBD) • It is the center of the stylized city’s economic life.

  5. Theory of Land Rent and Bid Rent Earlytheories of landrent: • DavidRicardo (1821) Agriculturalland Assump.: Thelandrentvarieswithfertilityandfertility of land is not same at alllocations. • VonThünen (1826) Land varies in location but fertilityremainssame. Land rentvariesbydistancetomarketplace.

  6. Theory of Land Rent and Bid Rent • The fundamental concept used in the theory of urban land market is “bid rent”.

  7. Theory of Land Rent and Bid Rent • E.g. Bid rent for a business: Maximum rent per unit of land that it can pay for a particular urban site and maintain a given profit level. • E.g. Bid rent for a hh: Maximum rent per unit of land that the hh can pay to reside at location A and maintain some given level of utility.

  8. Bid Rent Theory for Firms • Assumptions: A firm in an urban area 1. Itproduces a particularproductto be soldforexport at theport in thecenter of the urban area. • Firmoccupies 1 unit (km sq.) of landandproduces Q* unitsindependentfromthelocation. • Q=f(K,L,Land) • AC of laborandcapitalforeachunit of output is “c”. • Output is sold at price “p” at theport. • Transportationcost (firmtoport): t/km (foreachunit of output) • Land rentthatfirm has to pay forperunit of land: R

  9. Bid Rent Theory for Firms Bidrentfunctionforthefirm • Ifassumption 2 is valid: There is always a fixedratio of outputtoland: Land cannot be substitutedforotherinputs. Whataretheimplications on thebid-rentfunction? • Ifwereleaseassumption 2: Firms can changetheamount of K and L perunit of land. Whataretheimplications on thebid-rentfunction?

  10. Bid Rent Theory for Households • Assumption:Onlyattribute of landthatmattersto a hh is distancetothedowntownworkplace. • Greaterdistancetoworkplace has twocosts: Time costs + Money costs HH bidslessforland at greaterdistancestomaintainitsutilitylevel. HH bidrentfunctionwillassumethatutilitywillremainconstant as thehhmoves 1 km. Bidrentmustadjust MB of distancetoworkplaceto MC. MC of distance (time andmoneycosts)= t

  11. Bid Rent Theory for Households • Bid rent can also be a function of other variables: E.g. Distance to other employment centers. Quality of public schools Distance to shopping centers Distance from environmental disamenities (like air pollution, congestion, etc.)

  12. Bid Rent Theory for Households • What happens to the bid rent function when commuting cost per km (t) decreases? HH at the CBD will not be affected but hh located farther away will be affected. Reduction in commuting costs: More money to spend on land and other goods: Rents at all sites where x>0 will increase. Bid rent function rotates.

  13. Bid Rent Theory for Households • Do different types of hhs have different bid rent functions? • Number of children • Rich and poor people

More Related