mcgraw-hill/irwin ©2009 the mcgraw-hill companies, all rights reserved appendix chapter 7

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

Appendix Chapter 7

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•Central export node for freight

•Horse-drawn wagons for intracity freight

•Hub-spoke streetcar system for commuting

•Central information exchange

Model of a Monocentric City

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•Office firm has steeper bid-rent curve

•Cost of transporting office output (office workers) is relatively high

•Cost of transporting manufacturing output (in horse wagons) relatively low

Office Sector in Center

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•Segregation: Employment Area &Residential Area

•Cost of transporting output high relative to cost of moving workers

•Low worker transport cost: streetcars

•High output transport cost: horse carts or office executives

•Transport suburban workers to center vs. transport suburban output to center

Segregated Land Use

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•Why do the poor occupy land near the center?

•Why does household income generally increase as we move outward?

Income and Location: Introduction

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•Benefit of moving outward: Housing price decreases at decreasing rate

•Cost of moving outward: Commuting cost increases

Tradeoffs Between Commuting and Housing Costs

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•New suburban housing

•Fleeing central-city problems

•Suburban zoning excludes low-income household

Other Explanations of High-Income Suburbs

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•Paris: Rich mixture of cultural amenities strengthen pull toward center

•Detroit: Few central cultural opportunities to counteract pull to suburbs

Paris vs. Detroit

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•City is small: one of many in region or nation

•City is open: costless movement between cities

•National utility level unaffected by changes in city

•Population varies, depending on relative attractiveness of city

General Equilibrium Model: Introduction

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•Show interactions between land and labor markets

•Relevant prices: wage for labor; rent for land

•Simplifying Assumptions

•No consumer or input substitution

•City is rectangular

A Interactions Between Land and Labor Markets

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•Decrease in unit commute cost tilts residential bid-rent curve outward

•Expansion of the residential territory and increases labor supply

The Effects of the Streetcar on the Land Market

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•Excess supply of labor decreases the wage

•Decrease in wage decreases quantity of labor supplied

•Decrease in wage increases the quantity of labor demanded

The Effects of the Streetcar on the Labor Market

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•Decrease in resident income shifts the bid-rent curve shifts downward

•Decrease in residential bid decreases residential territory and quantity of labor supplied)

•Decrease in wage (production cost) shifts the business bid-rent curve shifts upward

•Increase in business bid-rent increases business territory & quantity of labor demanded

Effects of Lower Wage on Land Market

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•Increase in geographical size: CBD expands 50%, along with residential area

•Labor market: equilibrium workforce larger; wage is lower

New Equilibrium

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•Increase in rent increases density

•Labor-supply (residential) density

• Increases where rent rises

•Decreases where rent drops

•Labor-demand (employment) density increases where rent rises

•Density changes reinforce changes in territory

What if Density Varies?