Urban Economics

CHAPTER 1

Urban Economics
* is the study of the location choices of utility-maximizing households and profit-maximizing firms.
* Examines the question of the where of economic activity
* Examines why cities exist, why they grow, how different activities are arranged within cities and the spatial aspects of urban problems

What is Urban?

An Urban area
* is defined as ageographical area that contains a large number of people in a relatively small area.

Census Definitions

* Urban A: a density settled geographical are with a minimum population of 2,500 people and a minimum density of 5,000 people per square mile.
* Metropolitan A: a core area containing a large population nucleus (at least 50,000) and the nearby communities that are integrated.
*Micropolitan A: a smaller version of a metropolitan area with a concentration of 10,000 and 50,000 people.
* Municipality: an area over which a municipal corporation exercises political authority, providing local gov’t services (sewerage, crime and fire protection)
* Principal City: the largest municipality in each metropolitan or micropolitan statistical area.
* Primary MetropolitanStatistical Areas (PMSA): a large urbanized county that is integrated
* Consolidated Metropolitan Statistical Area (CMSA): a metropolitan area that is divided into two or more PMSAs

The Role of Cities in the Economy

Cities facilitate

1) creative thinking and innovation
* allow people to communicate and share common interests
* provide opportunities for knowledge spillovers, and toshare ideas & develop new products and production techniques
2) opportunities for workers to learn
* allow workers to interact with people who perform similar tasks, facilitate learning that increase productivity
* a formal on-the-job training and experience- apprentice effect
3) trade and commerce by providing a convenient gathering place for buyers & sellers
4) serves asproduction center
- the production of goods/services is more efficient in a high-density urban environment
5) provide consumers a wide variety of goods and services

Five Axioms of Urban Economics

* lies at the heart of urban economics and together provide a foundation for the economic models for location choices

1) prices adjust to ensure locational equilibrium
2)Self-reinforcing effects generate extreme outcome
3) Externalities cause inefficiency
4) Production is subject to economies of scale
5) Competition generates zero economic profit

CHAPTER 2A

The Location Decisions of Firms

* affect firm’s performance and its profit
* are based on profit maximization
* a potential firm’s profit increases when
1. Firm’s transportationcosts are low
2. Firm locates at inexpensive local site- no transfer of inputs
3. Firm experiences localization economies as well as urbanization economies
4. Firm locates where a efficient public sector exists

Location Theory

Help us explain
1. Where new/existing firms locate
2. Why cities arise in particular locations
3. Why some cities grow more rapidly thanothers

Transferable Inputs and Outputs

There are three firms to consider:

1. Transfer-Oriented Firm
* Is a firm for which transportation cost is the dominant factor in the location decision
* The location is determined by the outcome of a tug-of-war between procurement and distribution cost
* Has 4 assumptions
1. Single output: produces fixed quantity of a single product,which is transported from the production site to a market at point M
2. Single transferable input: may use several inputs, but only one input is transported from an input source to the firm’s production facility
3. Fixed-factor proportions: produces its fixed quantity with fixed amounts of each input- no factor substitution
4. Fixed prices: the firm is so small that it does not affect...