econ 4300 test 1
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What is the Location Equilibrium equation?
Wages (W) + Amenities (A) ‐ Housing Costs (H) = Constant (C)
What happens to Wages (W) if Amenities (A) increase to 400?
500 + 250 – 400 = C
Wages decrease by 500 – 350 = 150
What are the three components of an economic city?
- central business district (at least one)
- dense population relative to outlying area
- ends when land no longer needed for urban prospects
What does ceteris paribus mean?
All else equal
What is spatial equilibrium?
when there is no incentive to relocate to a new area or "indefference" between locations
What is the idea behind spatial equilibrium?
we are always moving towards spatial equilibrium, while we may never be IN a spatial equilibrium
In what situations can we use the Rosen/Robach model for?
- Policy Changes
- Estimating the value of amenities
Why does specialization exist?
because comparitive advantages separates people's opportunity costs
What are two economic reasons that cities exist?
- they allow people to specialize and trade
- economies of scale
Define the theory behind Economies of Scale.
average costs fall as output increases
What kind of cities would be considered Type 1 cities?
- old Western cities
- specializaton and trade cities
What kind of cities would be Type 2 cities?
- Economies of Scale in Transportation cities
- Erie Canal cities
What kind of cities would be Factory Towns?
- Economies of Scale in Production
What is the reasoning behind consumer cities?
as consumption increases, average cost decreases
What are some natural advantages that explain why cities pop up?
What is a portage?
a transfer city from a waterway to a rail or roadway of increasing elevation
Discern a natural resource extraction in the case of Pittsburgh.
Iron ore is the natural resource to make the finished product of steel
What is the distance formula for production location?
price of input/cost per mile
What are the two types of firm clusters?
- urbanization- indifferent firms cluster
- localization- similar firms cluster
Why do Final Good producers share intermediate inputs?
- to save on shipping costs
- access for face to face meetings
- modification costs- save on changing product
What are the benefits of labor matching?
- more workers=more variety of worker skills
- better match for skills you need
- don't have to train as much
improving the production process through knowledge informally
What was the problem with Ed Glaesar's Localization theory?
selection problem- those willing to move will earn higher wages for other reasons
Explain Michael Greenstone's explanation to Localization.
The effects of clustering- a huge new factory increases the productivity of nearby firms by labor pooling and knowledge spillover effects
WHat are some reasons firms benefit from localization?
- input sharing
- labor pooling
- knowledge spillovers
- servicing corporate headquarters
- joint labor supply decisions
WHat two groups did Matthew Kahn use to explain Localization?
power couples and singles
What are the offsetting effects to consumers' wants according to retail agglomeration?
- Price Cutting Effect-more competition
- Market-Size Effect-the chances consumers find what they want increases
What did Ernest Basker want to prove in retail agglomeration?
- Wal-Mart has a huge, positive effect on employment around it
- However, Basker picked places where employment would have increases without a Wal-Mart (selection effect)
Explain the Local Average Treatment Effect.
David Neumark discovered that for every job at Wal-Mart, 1.4 lost jobs at other retailers and wages decreased by 1.5%
What is the definition of Urban Land Rent?
What people are willing to pay to use land for a given time period
What are the two types of amenities?
- Site specific amenities-only exist at a given location (ex. Six Flags)
- Amentites we travel to (Ex. Kroger)
What is the distinction between freight-oriented firms and office firms?
- Freight-oriented firms needed to move output for national export
- Office firms rely on face to face inteaction with many other firms
Explain the Left Over Principle.
Firms are willing to pay for land after their costs have been subtracted from their revenues, including transport costs
What is the formula for the Leftover Principle?
WTP=Revenue-Product cost-Transport Cost
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