econ 4300 test 1

  1. What is the Location Equilibrium equation?
    Wages (W) + Amenities (A) ‐ Housing Costs (H) = Constant (C)
  2. What happens to Wages (W) if Amenities (A) increase to 400?

    500 + 250 – 400 = C
    Wages decrease by 500 – 350 = 150
  3. 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
  4. What does ceteris paribus mean?
    All else equal
  5. What is spatial equilibrium?
    when there is no incentive to relocate to a new area or "indefference" between locations
  6. What is the idea behind spatial equilibrium?
    we are always moving towards spatial equilibrium, while we may never be IN a spatial equilibrium
  7. In what situations can we use the Rosen/Robach model for?
    • Policy Changes
    • Estimating the value of amenities
  8. Why does specialization exist?
    because comparitive advantages separates people's opportunity costs
  9. What are two economic reasons that cities exist?
    • they allow people to specialize and trade
    • economies of scale
  10. Define the theory behind Economies of Scale.
    average costs fall as output increases
  11. What kind of cities would be considered Type 1 cities?
    • old Western cities
    • specializaton and trade cities
  12. What kind of cities would be Type 2 cities?
    • Economies of Scale in Transportation cities
    • Erie Canal cities
  13. What kind of cities would be Factory Towns?
    • Economies of Scale in Production
    • Detroit
    • Milwaukee
  14. What is the reasoning behind consumer cities?
    as consumption increases, average cost decreases
  15. What are some natural advantages that explain why cities pop up?
    • Ports
    • Rivers
    • Lakes
  16. What is a portage?
    a transfer city from a waterway to a rail or roadway of increasing elevation
  17. Discern a natural resource extraction in the case of Pittsburgh.
    Iron ore is the natural resource to make the finished product of steel
  18. What is the distance formula for production location?
    price of input/cost per mile
  19. What are the two types of firm clusters?
    • urbanization- indifferent firms cluster
    • localization- similar firms cluster
  20. 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
  21. 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
  22. improving the production process through knowledge informally
    knowledge spillover
  23. What was the problem with Ed Glaesar's Localization theory?
    selection problem- those willing to move will earn higher wages for other reasons
  24. 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
  25. WHat are some reasons firms benefit from localization?
    • input sharing
    • labor pooling
    • knowledge spillovers
    • servicing corporate headquarters
    • joint labor supply decisions
  26. WHat two groups did Matthew Kahn use to explain Localization?
    power couples and singles
  27. 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
  28. 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)
  29. 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%
  30. What is the definition of Urban Land Rent?
    What people are willing to pay to use land for a given time period
  31. 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)
  32. 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
  33. Explain the Left Over Principle.
    Firms are willing to pay for land after their costs have been subtracted from their revenues, including transport costs
  34. What is the formula for the Leftover Principle?
    WTP=Revenue-Product cost-Transport Cost
Card Set
econ 4300 test 1
location equilibrium