• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/269

Click to flip

269 Cards in this Set

  • Front
  • Back
urban area, including both downtown areas and the suburbs
city
study of location and people based upon the influence of government policies
urban economics
How do firms and people choose location?
By comparing costs and benefits
What are the social effects of individual location choices? Examples?
Externality

Ex. Factory location in a populated area can cause pollution

Ex. Neighborhoods; Full of people w/ families and college kids move-in
Why study Urban Economics?
Location choices affect businesses and government policies
In Economics, what is a public good? Example?
Non-excludable and non-rival

Ex. Great Wall of China
Unintended effects of an activity on a third party
externalities
2 Examples of Positive Urban Externalities:
1. Building of a hospital ("Medical Mile")
2. Knowledge (Closer to each other allows more knowledge)
Example of Negative Urban Externality:
1. Health problems caused by pollution
Most public goods are provided by governments (or an authority that forces people and/or firms to pay for them). Why?
Because public goods are a benefit to all, each person equally benefits from good.
T/F?

All public goods are provided by governments.
False
Where is it easier to provide public goods: in cities or in the countryside? Why?
Cities; More people using public goods, bigger population
Produce more = Average cost decreases = Lower cost per unit
Economies of Scale
Example of Economies of Scale:
Assembly Line
What causes economies of scale in production?
Indivisible inputs and labor specialization
Where is it easier to take advantage of economies of scale in production: in cities or in the countryside? Why?
Cities; More labor, demand for goods, more consumers willing to buy product
Why do cities exist?
People and firms' location choice's between city and countryside are based on benefit vs. cost analysis
3 Advantages of cities over rural areas:
1. Higher wages for skilled workers
2. Availability of more/cheaper/better goods
3. Social interaction
4 Disadvantages of cities over rural areas:
1. Higher cost of living
2. Pollution, congestion, crime
3. Away from nature
4. Higher risk of diseases, accidents, fires, etc.
In short, cities exist b/c they facilitate three essential economic activities. Which ones?
1. Trade
2. Learning
3. Production
Besides the three essential economic activities noted above, which other 4 activities were important in the development of cities throughout the history of human civilization?
1. Water (Availability of an essential resource)
2. Protection
3. Religion
4. Government
Considering the advantages of living in cities, are bigger cities better than small cities? Why? (5 Reasons)

a) for businesses?
1. More buyers
2. Better logistics
3. More infrastructure
4. Increased specialization
5. Lower production costs
Considering the advantages of living in cities, are bigger cities better than small cities? Why? (6 Reasons)

b) for consumers?
1. More variety of goods
2. Access to goods/resources
3. Lower prices; More competition
4. Higher income; More learning, education
5. Benefits from higher productivity of businesses
6. Amenities; Climate
In a free competitive market, what makes demand and supply to converge to equilibrium?
Price and Quantity
In free competitive land markets, land rents adjust to generate equilibrium in the location of people and firms. How?
Rent increases until supply equals demand
The "first principle" (above) implies that, in competitive land markets, equilibrium land rents offset locational advantages. What does this statement mean?
Pay as much as others think the area is worth.

Advantages of living in an area because it is "better", so rent is higher.
the net benefit of an activity relative to the best alternative
economic profit
In competitive markets, how much economic profit do firms make in the long run equilibrium? Why?
Zero; Because the market is competitive
In a competitive land market, land rents adjust so that firms make zero economic profit. Why?
Profit causes rents to increase causing profit to decrease
According to the "fifth principle" (above), competitive firms and land developers would make zero profit as land rents adjust the equilibrium. If so, in what four ways are developers and firms able to make economic profits in the real world?
1. Forecasting
2. No perfect knowledge
3. Some companies better than others
4. Sell different goods
Economies of scale in production help to explain agglomeration in cities. How?
Easier to provide in big factories

More workers so cause people to live in cities
Agglomeration of people and firms generates externalities.

a) Some agglomeration externalities are self-reinforcing. What does this mean?
Keep growing

Once it starts, it keeps getting stronger

Ex. = Poverty
Agglomeration of people and firms generates externalities.

b) Are the (negative or positive) externalities caused by the following events self-reinforcing?

Decay and abandonment of houses in the neighborhood
Yes
Agglomeration of people and firms generates externalities.

b) Are the (negative or positive) externalities caused by the following events self-reinforcing?

Traffic congestion
No
Agglomeration of people and firms generates externalities.

b) Are the (negative or positive) externalities caused by the following events self-reinforcing?

Poverty
Yes
Production is technically "efficient" when there is no ____________ of resources (so that more production of one good cannot be achieved without reducing the production of another good).
waste
Allocation of production (or resources) is ________________________ when there is no way to make one better off without hurting somebody else.
economically "efficient"
Externalities cause inefficiencies. Why?
More cars on the road take a different road but causes more time spent driving

Cost/driver will be higher (risk)
= Driver's Cost + Bystanders' Cost
Social Cost
Geographically, how have urban areas developed in the U.S.?
Policentric City (due to suburbanization)
5 Causes of Suburbanization:
1. Newer transportation modes
2. Cheaper land rents
3. Moving away from pollution, congestion, crime, etc.
4. Moving away from poverty
5. Social segregation (white flight)
a location choice between the central city and the suburbs
suburbanization
Central city location was advantageous in the past b/c what 2 reasons?
1. Transportation
2. Best location
Central cities advantages declined b/c what 3 reasons?
1. Land rents expensive
2. Pollution
3. Increased Crime Rate
As the large urban areas suburbanized in the 20th century, how were central cities affected?
Declined over time

Bigger in 60's and 70's

Were the richest areas

Now the opposite
Urban Economics is defined as the study of

a) the development, growth, and decline of the "city" (downtown areas)
b) location choices in urban areas
c) how businesses transport their inputs and outputs
d) which public goods local governments should provide
b) location choices in urban areas
Urbanization rates in 2000 were lower in these two major regions of the world:

a) Oceania and Africa
b) Asia and Africa
c) Asia and Latin America
d) Latin America and Africa
b) Asia and Africa
In Economics, "public goods" refer to goods that

a) are rival, but non-excludable in consumption
b) are rival and excludable in consumption
c) are non-rival, but excludable in consumption
d) are non-rival and non-excludable in consumption
d) are non-rival and non-excludable in consumption
Street lighting is an example of "public good" because

a) it is provided by the government using tax revenues collected from the public
b) it can be used by many people at the same time and is "good" (useful) to the public
c) more than one person can benefit from it at the same time and it is very costly to exclude somebody from benefiting from it
d) many people benefit from it over time
c) more than one person can benefit from it at the same time and it is very costly to exclude somebody from benefiting from it
Which of the following IS an example of "public good"?

a) mass transit system in the city
b) police patrol in the neighborhood
c) K-12 schools
d) a book available at the local city library
b) police patrol in the neighborhood
Among other factors, economies of scale in production exist because

a) public goods can only be provided at large scale
b) production in large scale generates negative externalities
c) labor specialization decreases with production scale
d) there are indivisible inputs in production
d) there are indivisible inputs in production
An example of economies of scale in production is when

a) it is cheaper to produce clothes in a factory than at home
b) roads can only be supplied by governments because users must be forced to pay
c) large companies pay higher wages to similar workers than small companies in the same industry
d) Tesla (a new small car manufacturer) was able to market electric cars before GM, which is a large car manufacturer
a) it is cheaper to produce clothes in a factory than at home
The following is an example of negative externalities:

a) coal combustion in a power plant
b) increased housing prices due to lower mortgage rates
c) respiratory problems caused by air pollution from a nearby factory
d) the damages to a store caused by criminals who broke in to steal products
c) respiratory problems caused by air pollution from a nearby factory
Which of the following is NOT one of the three most important advantages of city (urban) location (vis-a-vis the countryside)?

a) there is less crime in cities
b) it is easier to trade
c) production is less costly
d) people learn more in cities
a) there is less crime in cities
Which of the following is not one of the five principles (axioms) of urban economics?

a) urban externalities cause inefficiencies
b) self-reinforcing urban externalities cause extreme outcomes in cities
c) land rents (or prices) adjust so that there is equilibrium in location choices
d) suburbanization was caused by the increasing economies of scale in production
d) suburbanization was caused by the increasing economies of scale in production
Land rents are higher in cities than in the countryside because

a) the advantages of urban location make people and/or firms to bid more for urban land
b) urban soil has better quality for farming
c) property taxes on urban land are higher, making rents higher
d) there is financial speculation in urban real estate markets, but not in rural markets
a) the advantages of urban location make people and/or firms to bid more for urban land
A firm makes "zero economic profit" when

a) the firm does not gain any revenue
b) the firm's owners could make the same return if they had invested their money and work in the best alternative
c) the firm is losing money (revenues are lower than monetary costs)
d) the firm just breaks even, so that the amount earned selling goods exactly equals the amount spent producing or buying the goods
b) the firm's owners could make the same return if they had invested their money and work in the best alternative
The following is an example of self-reinforcing urban externality:

a) health problems from pollution get worse when more cars are driven on a given road
b) when a developer builds a skyscraper, the negative effects of this development on the neighborhood reduces the incentive for other landowners to also build skyscrapers
c) when a new store locates in an area, consumer traffic increases for all stores in the area, thus attracting even more stores to the area
d) when the government improves its services, more people move into the city, but that degrades the quality of the services
c) when a new store locates in an area, consumer traffic increases for all stores in the area, thus attracting even more stores to the area
When we say that externalities cause inefficiencies in free competitive markets, we mean that

a) externalities are always undesirable
b) there is too much or too little of the activities that cause externalities because people don't generally take into account the effects of their actions on others
c) the activities that generate the externalities are very costly to society
d) it is inefficient to try to control externalities because the cost of doing so is typically too large
b) there is too much or too little of the activities that cause externalities because people don't generally take into account the effects of their actions on others
Agriculture surplus is a condition to allow urban development because

a) rich farmers were the only ones who could afford high land prices in cities
b) city dwellers cannot sell their production if farmers don't have money left to buy urban goods
c) a surplus reduces the price of food, inducing more farmers to move to the city
d) city dwellers need to buy food from farmers
d) city dwellers need to buy food from farmers
the value of the best alternative
opportunity cost
the ability to produce at a lower opportunity cost
comparative advantage
Trade should happen only between parties that have different ________________. Moreover, the trading price must be at least above the ___________________ and below the _________________.
opp. costs; opp. cost of seller; opp. cost of buyer
For trade to be beneficial to all parties, transaction costs must not be too ____.
high
Two Solutions for the Transportation Cost Issue:
1. Move closer
2. Improve transportation mode
How do economies of scale in transportation help solve the transportation cost issue in trading?
Trade more than one unit of bread

Average cost would be cheaper
When transportation cost is high, why does trade require middlemen?
Sell at large scale could allow more of a profit

Saves time for seller and allows more time to make goods

Middlemen will do transportation for a price
Where did merchants initially locate? How is this related to the formation of cities?
Somewhere in between (the middle) of north and south region

Near transportation

Choose the best location for best access of producers and consumers
How did land rents change in the proximity of trading markets?
Increased because land is worth more, better proximity causes lower transportation costs
Because of transportation costs, trade might not be worthwhile. But if economies of scale in production are strong enough, trade could be worthy again. How?
If cost is low, offset high transportation cost = worthy
How much is the price of a product in a perfectly competitive market? Why?
P = MC

Competition makes lower prices
Show that, for general production and commuting costs, the city size is given by:

city size = h-P/t
Buy from factory if P + t x d is less than or equal to h
Note that city size increases when factory-output price (P) _____________.

What could make factory price (P) to ____________, thus increasing city size? (3 Reasons)
goes down; decrease

Better technology

Lower price of inputs

Lower taxes, regulations
Note that city size increases when transportation cost per mile (t) ____________.

What could make transportation cost per mile (t) to _____________, thus increasing city size? (2 Reasons)
goes down; go down

Better transportation modes

Opp. cost of time to go down
Note that city size increases when home-production cost (h) _____________.

What could make the home production cost (h) to ____________, thus increasing city size? (2 Reasons)
increases; increase

Opp. cost of time goes up

Skills to make at home go down
5 Reasons City Area Size Increases:
1. Better technology of large scale production
2. Cheaper transportation
3. Better institutions
4. Higher opportunity cost of home time
5. Loss of skills to make products at home
Historically, why did cities grow in size?
Land rents were higher in the proximity of factory
How is land rent determined?

For instance, residential rents (per sq. ft.) are higher in the proximity of business centers because _____________________.

For people who live farther away from the business center, the _____ commuting cost is offset by ________ land rents.
of greater accessibility to trade; higher; lower
How is the price of land determined?

a) Price does not equal value. Why?
Price is typically less than value

Value = How much it is worth to me?
In a free market, price = marginal value. Why?
Marginal = Value of last unit sold

As long as someone thinks the value is greater than the price, people will buy
In accounting, "asset' is anything owned that has monetary value. What is an "asset" in Economics?
Anything that provides us w/ benefits
Is land an economic asset? Why?
Land provides benefits:

Space for recreation, shelter, privacy, production, trading, amenities (nature)
How is the value of land determined?
Sum of expected future benefits (returns) generated by the asset, brought to present value
Besides the risk due to volatility of returns (which is common to most investments), there are two main additional risks in real estate investment:
Vacancy

Irreversibility
costs that do not involve monetary payments
implicit costs
What is the MB from land ownership?
Gross Rent
What is the MC of land ownership?
Explicit Costs: Taxes, insurance fees, etc.

Implicit Costs: Returns from alternative assets
In the case above, what does "the land owner gets zero economic profit" mean in practice?
Land owner getting same return as opp. cost
How does land price change when the economy's interest rate goes down? Explain the economic logic behind the relationship b/w land price and interest rate.
Higher interest rate --> higher return rate needed for land ownership --> price has to be lower (to generate higher return)
How does location affect sales revenue?
Location gives accessibility to buyers

Competition from nearby sellers
How does location affect business costs?
Transportation costs for inputs and distribution of output

Price of inputs available

Taxes, regulations, infrastructure/services provided by governments

Agglomeration benefits/cost (cost of congestion, spillovers)

Natural Conditions (Climate, Earthquakes, Topography, etc.)

Inputs: Labor, space, materials, parts, services, etc.
cost of bringing inputs to the factory (or production center)
procurement cost
cost of distributing output to the market
distribution cost
In a weight-loss process, which costs tend to be higher: PC or DC? Thus, where should the factory be located?
PC; Input Source
Example of weight-loss production?
Lumber Mill
In a weight-gain process, __ (PC/DC) tend to be relatively higher, implying that the factory be located close to the __________ (input source/market area)
DC; market area
Example of a weight-gain production?
Pop Bottling
(Tons of input brought / Tons of output generated)
Input-Output Weight Ratio
If PC is greater than DC, factory should locate close to _______.
inputs
If DC is greater than PC, factory should locate close to ________.
market
______________________ exist when the cost of transporting an additional mile is decreasing. That is, the marginal cost of transportation over additional miles gets lower and lower.
Economies of distance in transportation
What causes economies of scale in production? (2 Examples)
Indivisible inputs

Labor specialization
For rural residents, relative benefits are less than or equal to costs. Why would that happen? (3 Reasons)
Don't have urban skills

Don't need city jobs

Enjoy living surrounded by wild environment
T/F?

Currently only about 20% of the population and jobs are located within 3 miles from city centers in the United States
True
exist when the cost of transporting an additional mile is increasing. That is, the marginal cost of transporting over additional miles gets higher and higher.
diseconomies of distance in transportation
Labor costs (wages) are higher in the proximity of market areas. Why?

Demand-side increases (2 Factors)
Productivity increases due to agglomeration economies

Competition (bids up wages)
Labor costs (wages) are higher in the proximity of market areas. Why?

Supply-side factors decrease (3 Factors)
Cost of living increases

Congestion, pollution, crime

Unionization
If labor costs become significantly large, optimal location may change in favor of the __________ area because labor costs are ______ there.
input source; cheaper
Historically, manufacture production moved away from market areas (first to the interior of the country, then to other countries). Looking at transportation and labor costs only, can we explain this location change?
Transportation cost decreases b/c technology increases

Labor costs increase b/c city growth, agglomeration, and unionization increase
Ex: Renaissance Zones, Brownfield Redevelopment
tax incentive
Ex: Favorable land rezoning
looser regulation
Ex: grants, land supply, low interest loans
direct subsidies
Ex: loan guarantee, labor training
indirect subsidies
Ex: education (labor training), water, sewage, safety, mass transit
service provision
Ex: roads, airports, site development
infrastructure provision
Why do local governments provide incentives for businesses to locate in their cities?

Benefit-cost analysis:

Economic benefits from additional business activities (5 Reasons)
More jobs (directly, indirectly)

Future Tax Revenues

Cheaper prices for local consumers due to greater competition

Revitalization of decaying area

Agglomeration economies
Why do local governments provide incentives for businesses to locate in their cities?

Benefit-cost analysis:

Economic costs due to additional business activities (4 Reasons)
Competition w/ local business, lowering their profits/employment

Pollution, congestion, crime

Monetary loss of tax revenue, greater debt to pay for incentives/infrastructure

Opp. cost of spending money in other govt. activities (education, training, safety)
% change in B.A. / % change in property tax rate
Tax Elasticity of business activities
Why is the intra-metropolitan elasticity greater than the inter-metropolitan elasticity?
Easier to move from a bigger area to a smaller area
Would the international elasticity of business activities be smaller or higher than the inter-metropolitan elasticity? Why?
Lower b/c cross-country mobility is costly
What is the main economic criticism against government incentives to attract businesses?
High opp. cost of giving gov't incentive, especially considering that if no incentives were given, firms would still locate in the cheaper area
Which of the following is true about trade?

a) the minimum acceptable price in a trade is the buyer's opportunity cost of production

b) the maximum acceptable price in a trade is the seller's opportunity cost of production

c) higher sale taxes or tariffs increase the probability that trade will happen

d) lower transportation costs increase the probability that trade will happen
d) lower transportation costs increase the probability that trade will happen
5) In the factory city model in chapter 2, what is the relationship between transportation cost per mile and city size?

a) the greater the transportation cost, the smaller the city size.

b) the greater the transportation cost, the greater the city size.

c) the city size is not affected by transportation cost.

d) city size may increase or decrease with transportation cost, depending on the type of goods produced.
a) the greater the transportation cost, the smaller the city size.
6) In the factory city model in chapter 2, what is the relationship between factory productivity and city size?

a) the greater the factory productivity, the smaller the city size.

b) the greater the factory productivity, the greater the city size.

c) the city size is not affected by the productivity of the factory.

d) city size may increase or decrease with factory productivity, depending on the type of goods produced.
b) the greater the factory productivity, the greater the city size.
7) Economies of scale in transportation means that

a) it is less costly to transport lighter items than heavier ones

b) differences in measures (scale) across countries make it costly to transport goods
internationally

c) on average, it is less costly to transport over large distances than over short distances

d) on average, it is less costly to transport large amounts of goods than small amounts
d) on average, it is less costly to transport large amounts of goods than small amounts
8) Comparative advantage is the ability to produce

a) a better quality product

b) with lower opportunity cost

c) more with the same
amount of resources.

d) the same output with a smaller amount of resources
b) with lower opportunity cost
The following are conditions required for cities to sustain development, EXCEPT

a) there is a common religion or political view that unites urban residents

b) there is an agricultural surplus to feed urban residents

c) urban residents produce something to exchange for food produced in farm areas

d) transportation cost must be low enough to allow urban residents to trade with farmers
a) there is a common religion or political view that unites urban residents
Resources-oriented (material-oriented) industries are

a) industries that produce inputs to other industries

b) industries that have high cost of transporting inputs relative to outputs, thus tending to locate closer to input sources

c) industries that invest most of their profit to find or develop new sources of inputs (like the oil industry)

d) industries that are heavily dependent on physical capital
b) industries that have high cost of transporting inputs relative to outputs, thus tending to locate closer to input sources
(Land price model) Bob owns a rental property (he paid $150,000 for it).
The annual long run interest rate in the economy is 3 %. How much must be the annual net rent obtained from the property to justify the price paid? (Assume that markets are competitive, there are no taxes or other costs, and the values above remain constant forever.)

a)$45,000

b)$154,500

c) $4,500

d) $5,000,000
c) $4,500
12) (Land price model) Holding other factors constant, when the long run interest rate in the economy goes up,

a) Land prices go up.

b) Land prices don't change,
but land rents go down.

c) Land prices go down.

d) Land prices don't change, but land rents go up.
c) Land prices go down.
13) (Land price model) In a perfectly competitive land market, the net rent should be close to the land price times the interest rate in the economy (r = i x P). Why?

a) the value of land is determined by the price discounted by the interest rate.

b) the net return from owning a land lot should be close to the opportunity cost of the ownership of the land.

c) the federal tax law makes returns above the interest rate taxable at a very high tax rate.

d) to get net rents, we discount the gross rent (which equals the price) by the interest rate.
b) the net return from owning a land lot should be close to the opportunity cost of the ownership of the land.
14) (Land price model) If the rent of a house is $1000 per month and the annual interest rate in the economy is 5 %, how much a potential buyer would have to pay to the owner in order to convince him/her to sell it? (Assume a competitive market, there are no taxes or other costs, and values remain constant forever.)

a)$50,000

b)$200,000

c) $20,000

d) $240,000
d) $240,000
15) (Land price model) If the rent of a lot of land is $1000 per year and the annual interest rate is 4 %, what is the value of the lot of land? (Assume a competitive market, there are no taxes or other costs, and values remain constant forever.)

a)$25,000

b)$40,000

c) $1,040

d) $1,000
a)$25,000
16) (Land price model) Which of the following is true?

a) The value of a land lot is determined by the current and future returns obtainable from owning the land lot.

b) Land price is always higher than land value.

c) The value of a land lot is determined by the opportunity cost of owning that land lot.

d) Land value determines land rent, so they are always equal to each other.
a) The value of a land lot is determined by the current and future returns obtainable from owning the land lot.
17) Procurement cost refers to

a) the cost of finding and training skill-specific workers

b) the cost of transporting the output to the market

c) the cost of transporting inputs to the production facility

d) the cost of commuting to workers
c) the cost of transporting inputs to the production facility
18) Distribution costs refer to

a) the cost of bringing inputs to the production facility

b) logistic costs in general

c) the costs of distributing products to the market
c) the costs of distributing products to the market
19) The lower the input-output weight ratio, the more likely the production facility will be located close to

a) the market area

b) the input source area

c) other similar facilities, to benefit from economies of scale in transportation

d) other similar facilities, to benefit from agglomeration economies
a) the market area
20) The more perishable is the output relative to the input, the more likely the production facility will be located

a) close to the input source area

b) close to the market area

c) in an area with high population density

d) close to other similar facilities, to benefit from economies of scale in transportation
b) close to the market area
21) The more hazardous the input is compared to the output, the more likely the production facility will be located

a) close to the market area

b) close to the input source area

c) at middle way from the input source to the market area

d) close to a coastal area
b) close to the input source area
22) If procurement costs (PC) per ton of output are greater than distribution costs (DC) per ton of output, then (holding other costs constant)

a) the location of the production facility should be close to the input source area

b) the location of the production facility should be close to the market area

c) the input-output weight ratio must be less than one

d) there must be economies of distance in transportation
a) the location of the production facility should be close to the input source area
23) Among other reasons, labor costs are higher in "market" areas (i.e., in big cities) because

a) there are more workers in market areas.

b) of minimum wage laws

c) labor productivity is higher in big cities
c) labor productivity is higher in big cities
24) Among other reasons, labor costs are higher in "market" areas (big cities) because

a) business taxes are higher in big cities, so that firms are more labor-intensive (they use less capital and more workers)

b) living costs are higher and living condition are worse (more pollution, congestion, crime, etc.)

c) labor productivity is lower in big cities
b) living costs are higher and living condition are worse (more pollution, congestion, crime, etc.)
25) Diseconomies of distance in transportation (i.e., increasing marginal cost of transporting over additional miles) arise when

a) there is a change in transportation mode that makes long-trip transportation more costly than short-trip transportation

b) there is a change in transportation mode that makes long-trip transportation less costly than short-trip transportation

c) transporting in large scale is cheaper than transporting a small amount of the product

d) transporting in small scale is cheaper than transporting large amounts of the product
a) there is a change in transportation mode that makes long-trip transportation more costly than short-trip transportation
26) Economies of distance in transportation (i.e., decreasing marginal cost of transporting over additional miles) can occur when

a) there are economies of scale in production

b) loading the transported good on a truck or wagon is virtually costless

c) the good is not fragile or hazardous

d) truck is used for short-trip transportation, but a lower cost mode is used for long-trip transportation
d) truck is used for short-trip transportation, but a lower cost mode is used for long-trip transportation
27) Suppose that the market area for a company is located 500 miles away from the input source. The location of the production facility is denoted by x, which is the distance of the facility from the input source. If procurement cost per ton of output is given by PC(x)=10x and distribution cost per ton of output is given by DC(x)=4(500-x), what is the optimal location of the production facility? Ignore other costs.

a) close to the market area

b) close to the input source

c) midway between the market area and the input source

d) anywhere between the market area and the input source
b) close to the input source
28) Suppose that the market area for a company is located 500 miles away from the input source. The location of the production facility is denoted by x, which is the distance of the facility from the input source. If procurement cost per ton of output is given by PC(x)=3x and distribution cost per ton of output is given by DC(x)=6(500-x), what is the optimal location of the production facility? Ignore other costs.

a) close to the market area

b) close to the input source

c) midway between the market area and the input source

d) anywhere between the market area and the input source
a) close to the market area
29) Suppose that the market area for a company is located 10 miles away from the input source. The location of the production facility is denoted by x, which is the distance of the facility from the input source. There are only four possible locations for the production facility: x=0 (the input source), x=3, x=5, or x=10 (the market area). If procurement cost per ton of output is given by PC(x)=x2 and distribution cost per ton of output is given by DC(x)=6(10-x), what is the optimal location of the production facility? Ignore other costs.

a) x=0 (input source)

b) x=10 (market area)

c) x=3

d) x=5
c) x=3
30) Suppose that the market area for a company is located 10 miles away from the input source. The location of the production facility is denoted by x, which is the distance of the facility from the input source. There are only four possible locations for the production facility: x=0 (the input source), x=3, x=5, or x=10 (the market area). If procurement cost per ton of output is given by PC(x)=x2 and distribution cost per ton of output is given by DC(x)=15(10-x), what is the optimal location of the production facility? Ignore other costs.

a) x=2

b) x=4

c) x=0 (input source)

d) x=10 (market area)
d) x=10 (market area)
Agglomeration economies in production:

production cost savings (due to productivity increases) in the proximity of: (2 Factors)
production by other firms in the same industry

production in general (including by the government)
cost savings due to proximity to firms in the same industry
localization economies
Why do same-industry firms cluster?

a) Advantages (economies) of a cluster location: (4 Reasons)
Sharing of specialized labor pool

Sharing of suppliers (equipment, material, services)

Sharing of knowledge, information

Sharing of infrastructure (roads, airports, etc.)
Why do same-industry firms cluster?

b) Disadvantages (costs) of a cluster location: (4 Reasons)
Competition for space for other business equals higher rents

Labor costs are higher due to competition and higher productivity, unionization

Tax rates might be higher (especially in older clusters)

Congestion, pollution, crime
Based on the answer for the previous question, we can say that agglomeration economies come in general from the sharing of __________.
resources
For each of the following cases, explain how agglomeration create economies.

a) Sharing of skilled labor: How this helps firms? (2 Reasons)
Less training costs

Less search costs
Does agglomeration of firms in the same industry help or hurt the workers? (2 Reasons)
Easier to find jobs

Higher wage rates
For each of the following cases, explain how agglomeration create economies.

b) Sharing of specialized input suppliers: How this helps firms? (2 Reasons)
Easy to find suppliers

Economies of scale in input supply (suppliers have lower costs because of greater scale)
For each of the following cases, explain how agglomeration create economies.

c) Sharing of infrastructure: How this helps firms? (3 Reasons)
In clusters:

More likely to have infrastructure provided by the government

Better quality

Lower tax rates
For each of the following cases, explain how agglomeration create economies.

d) Sharing of knowledge: How this helps firms? (1 Reason)
Learning from other firms speeds up development of products, innovation, reduces failures, etc.
% change in productivity / % change in industry production size
Elasticity of productivity to industry size
Is there evidence of localization economies in real world production?

For instance, in the case of the office sector, a 1% increase in the ____________________ is correlated with a __________% increase in __________. (a very sizable gain).
size of cluster production; 0.27; productivity
Why are people moving to clusters?
People are moving to clusters because its more of a better move and closer to the same industry, meaning more knowledge
benefits from location near production in general (regardless of industry), including gov't provided services and infrastructure
urbanization economies
What causes urbanization economies? (4 Reasons)
Labor pool sharing

Specialized input sharing

Infrastructure sharing

Knowledge sharing
(% change in productivity of firms) / (% change in area population)
elasticity of productivity to population size
A 1% increase in the _________ is correlated with a _________________% increase in ____________.
population; .03-.08; productivity
Are agglomeration economies self-reinforcing?
Yes
What are the policy implications from the existence of self-reinforcing agglomeration economies? In other words, how should gov'ts design their business incentive policies given the existence of self-reinforcing agglomeration economies?
Clusters; so that they don't have to bribe businesses in future
1) Which of the following is NOT an example of localization economies?

a. offices and retail stores clustered in downtown Chicago,
IL

b. clustering of technology firms in the Silicon Valley.

c. financial institutions clustered in the financial district in New York City

d. clustering of carpet manufactures in Dalton, GA
a. offices and retail stores clustered in downtown Chicago,
IL
2) "Urbanization economies" refer to

a. the process of urbanization of local economies.

b. the benefits from locating in the city rather than in a rural area

c. the benefits from locating in a cluster of production (in general, regardless of industry)

d. the benefits from clustering of firms that belong to the same industry
c. the benefits from locating in a cluster of production (in general, regardless of industry)
3) The clustering of the movie production industry in Los Angeles is an example of how companies benefits from

a. urbanization economies

b. localization economies

c. economies of scale in transportation
b. localization economies
4) Among other reasons, labor costs are higher in market areas (i.e., in big metro areas) because

a. there are more workers in market areas.

b. corporate taxes are lower in market areas, allowing companies to pay more to workers.

c. labor productivity is higher in market areas due to agglomeration economies.
c. labor productivity is higher in market areas due to agglomeration economies.
5) One of the reasons that make companies to benefit from agglomeration economies is the clustering of specialized labor. This helps companies because

a. labor search and training costs are lower

b. wages are lower (there is large supply of specialized labor)

c. labor tax rates are lower since local governments have a larger base (more workers) to tax
a. labor search and training costs are lower
6) The policy implication from the existence of agglomeration economies is that

a. governments should stimulate many different industries simultaneously

b. governments should focus their business incentives on industries that benefit more from agglomeration economies

c. governments should focus business incentives on industries that are labor intensive and sensitive to transportation costs
b. governments should focus their business incentives on industries that benefit more from agglomeration economies
7) Considering how sharing of knowledge and information benefit companies, in which of the following industries are agglomeration economies likely to be more relevant?

a. wood furniture

b. construction

c. medical research

d. mining
c. medical research
8) Agglomeration economies is more important in industries like

a. basic manufacture (e.g., wood furniture, metal parts)

b. research and development

c. construction
b. research and development
9) One of the causes of agglomeration economies is

a. economies of scale in the provision of infrastructure and in the production of inputs by local suppliers

b. lower tax rates in bigger cities

c. lower wages in business clusters

d. lower transportation costs when producing everything close to the input sources and then distributing to the rest of the economy
a. economies of scale in the provision of infrastructure and in the production of inputs by local suppliers
10) One piece of evidence that localization economies are important to businesses is provided by the study by Duranton and Puga, 2003 (mentioned in the class notes). According to that study,

a. most firm relocations happen from non-specialized to specialized areas

b. most firm relocations happen from specialized to non-specialized areas

c. firms in industries like furniture, paper, and food are more likely to relocate from non-specialized to specialized areas

d. firms in industries like R&D and pharmaceutical are more likely to relocate from specialized to non-specialized areas
a. most firm relocations happen from non-specialized to specialized areas
11) One way to provide evidence of urbanization economies is to look at the elasticity of labor productivity with respect to population. According to a study by Rosenthal and Strange (2004), this elasticity is around 0.05 on average. What does this elasticity value mean?

a. Output per worker increases by 0.05% when city population increases by 100% holding everything else constant.

b. Output per worker increases by 5% when city population increases by 100% holding everything else constant.

c. Output per worker increases by 50% when city population increases by 100% holding everything else constant.
b. Output per worker increases by 5% when city population increases by 100% holding everything else constant.
12) Which of the following is NOT an example of an industry cluster that occurs due to agglomeration economies?

a. corn milling industry located in the Corn Belt (Iowa, Illinois, Indiana, Kansas, Nebraska, Minnesota, Missouri).

b. carpet and rug industry located in Dalton-GA.

c. software industry located in the San Francisco Bay Area, Seatle, and Boston.

d. movie production industry located in Los Angeles-CA.
a. corn milling industry located in the Corn Belt (Iowa, Illinois, Indiana, Kansas, Nebraska, Minnesota, Missouri).
To people/firms located in a city, what are the costs from greater population and production? (2 Reasons)
Higher cost of living (housing, commuting), congestion, pollution, crime

Agglomeration costs
At which city size is pre-rent utility maximized?
Marginal Benefit = Marginal Cost
Why does the marginal benefit of population growth become eventually smaller and smaller?
More people means decreasing benefit
Why does the marginal cost of population growth become eventually higher and higher? (2 Reasons)
Higher cost when population increases

Higher rent (cost of living)
What is the (free market) optimal city size? Why?
City grows (more people/firms move in) if the marginal benefit is greater than the marginal cost
Is the optimal city size the same for every region?
NO
Is the optimal city size the same for every region? Why? (6 Reasons)
Infrastructure

Industry specializations

Availability of specialized services

Cultural environment

Historical development

Gov't
What happens with sub-optimal cities (cities smaller than optimal) in the long run? (2 Options)
Population increases because utility increases, immigration causes population to increase, reaching the optimum

Population decreases, causing utility to decrease, causing outmigration, and city disappears
Can cities become too large? How? (2 Ways)
Something happens that causes the optimal size to change

Change in industry
Cities that are larger than the optimal size may not shrink (at least not quickly). Why?
If city decreases, net benefit curve actually increases, better for people to stay, than leave.

As some people move out, city gets better, but that stops the out-migration, as people wait for others to leave first (especially b/c housing is very durable)
Which of the following is true?

a. Due to agglomeration economies, all cities tend to become specialized in the long run.

b. Specialized and diversified cities (in terms of industries) complement each other (there is a role for each type of cities).

c. Only cities with diversified industries can survive in the long-run because innovation only occurs in a diversified environment
b. Specialized and diversified cities (in terms of industries) complement each other (there is a role for each type of cities).
According to the rank-size rule,

a. The population rank of the city times its population size is constant across cities.

b. Density of the city is proportional to population size.

c. The population density rank of the city equals the population rank of the city.

d. The population rank of the city increases with its population size.
a. The population rank of the city times its population size is constant across cities.
The rank-size rule of population distribution in a country predicts that

a. there should be a small
number of large cities, but a larger number of smaller cities

b. there should be as many large cities than very small cities

c. all cities should have the same size

d. only small cities are optimal; big cities are anomalies and should disappear over time
a. there should be a small
number of large cities, but a larger number of smaller cities
One explanation for why developing countries typically have high population concentration in a single big city is

a. labor costs are especially cheaper in these very big cities, making most companies to locate there.

b. the existence of economies of scale in production, considering that demand for products is not large in these countries to justify more than one large factory for each product.

c. poor people are attracted to the city with the best natural attractions
b. the existence of economies of scale in production, considering that demand for products is not large in these countries to justify more than one large factory for each product.
Which of the following is true about the optimal city size in a region?

a. bigger cities are always better than smaller cities

b. cities can never be too big

c. cities that are smaller than optimal will disappear (they shrink in size and eventually disappear)

d. cities that are smaller than optimal tend to either grow to the optimal size or disappear
d. cities that are smaller than optimal tend to either grow to the optimal size or disappear
The optimal size of cities is:

a. the same everywhere, meaning that small cities tend to grow, while large cities tend to shrink over time

b. different across regions because each region has distinct amenities, taxes, industries, climate, etc.

c. different across regions MAINLY because the optimal size is determined by land costs

d. the same everywhere, ALTHOUGH it is just a theoretical optimum, which is never achieved in practice due to market failures like negative externalities
b. different across regions because each region has distinct amenities, taxes, industries, climate, etc.
The optimal city size (in the point of view of individual households) is the one that:

a. maximizes the gross benefit of locating in this city

b. minimizes the pre-rent cost of locating in the city

c. maximizes the pre-rent utility of locating in the city

d. makes the total benefit to residents equal to the total cost to residents
c. maximizes the pre-rent utility of locating in the city
Which of the following is true about the optimal size in a region?

a. In the long run, all cities should have the same optimal size in all regions

b. Even in the long run, cities will have different optimal size depending on characteristics of the region

c. All cities tend to become too large in the long run

d. All cities tend to be sub-optimal in size in the long run
b. Even in the long run, cities will have different optimal size depending on characteristics of the region
increase in production
economic growth
What are the determinants of regional economic growth? (8 Factors)
New technologies, new products

Ability to export (competitiveness)

Capital

Labor

Human Capital (knowledge skills)

Gov't infrastructure, services, incentives

Agglomeration economies

Material, natural resources
knowledge and skills embedded in the labor supplied by workers
human capital
Phase: Hunting-gathering

Important Factors: (2)
Labor

Natural Resources
Phase: Agriculture

Important Factors: (3)
Labor

Land

Climate
Phase: Trade

Important Factors: (2)
Competitiveness

Labor
Phase: Low-tech Manufacture

Important Factors: (3)
Capital

Labor

Human Capital
Phase: High-tech manufacture, services

Important Factors: (3)
New technology

Human capital

Labor
labor employed to produce export goods (goods exported to other regions)
export employment
labor employed to produce goods consumed locally
local employment
Economic growth is affected differently by export employment and by local employment. Why? (2 Reasons)
Export employment creates new spending in the economy as more money comes from outside

Local employment might only reallocate existent spendings
the total number of jobs created in the region as the result of an additional job created in the export sector
export employment multiplier
In practice, each industry has different employment multipliers. How should gov'ts use employment multiplier to design policies to stimulate job creation in the region?
(2 Ways)
Benefit x Cost

Highest Job / $ Spent
What are the determinants of the local labor demand (what can shift the local labor demand curve)? (2 Factors)
Production, which depends on demand for goods produced in the region (determined by competitiveness of the goods, tastes, income, population) and on supply (determined by costs)

Technological innovation (labor saving)
What are the two main reasons for a downward sloped labor demand curve?
Input Substitution Effect

Output Effect
Input Substitution Effect

As wage rates increase

- substitution of _______ for _______

- quantity of labor demanded decreases
capital; labor
Output Effect (increased labor cost reduces production)

As wage rates increase

- costs of production ______

- production _________

- quantity of labor demanded decreases
increases; decreases
The demand for local labor is much more elastic than the national demand for labor. Why?
Mobility effect: firms move out if wages rise
What are the determinants of the local labor supply (what can shift the local labor supply curve)? (2 Reasons)
Migration due to:

- Attractiveness
- Wars, natural disasters, political crisis, economic crisis, etc.

Demographical changes
The local labor supply is much more elastic than the national supply. Why?
When wage increases, people from other places come in
Population is very mobile in the U.S. (and moving costs are not so high in the long-run).

The local labor supply is very elastic in the U.S., about +5. What does this elasticity value mean?

A 1% change in the _______ causes a 5% increase in the ____________, holding other factors constant.
wage; labor force or supply
Why isn't the local labor supply perfectly elastic despite low mobility costs?

As wage rate increase, population __________, costs of living ___________ (because congestion, land rents, service prices ________), in-migration stops
increases; increases; increases
Which regions should have more inelastic labor supply?

Since workers need housing, labor supply is more inelastic where housing supply is __________ (due to natural or legal constraints).

Since workers enjoy amenities (and dislike disamenities), labor supply is more inelastic where there are strong ______________ (e.g., cold, desert, isolated place, etc.)
inelastic; disamenities
How does the wage rate change when there is an improvement in the quality of government services in city A?
Supply decreases
There is a technological innovation in the industry in city A, making workers more productive there. What is the effect on the labor markets of city A and of city B (which is A's neighbor)?

Demand for labor in A _____________, wage in A _______, utility in A _________ (A becomes _____ attractive relative to B), migration from _ to _, quantity of labor supplied in A _____, while labor supply in B ______, wage in B _____ until equal to wage in A again in equilibrium.
increases b/c production increases; increases; increases; more; B; A; increases; decreases; increases
T/F?

Equilibrium real wage (adjusted to cost of living) must be the same across cities in the SAME region. If real wages differ, more workers move to the high wage city.
True
1) As the economy changes from manufacture-based to service/technology-based, which of the economic growth factors becomes the most important?

a. land availability

b. quality of human capital

c. large labor pool
availability

d. government subsidies
b. quality of human capital
2) If the employment multiplier in the hospital industry in a region equals 2, it means that for every one-job increase in hospital-employment, there will be an additional ______________ job(s) created in the regional economy due to the higher demand for goods and services created by the spending of the wage earned by the new hospital-employee.

a. one

b. two

c. half
b. two
3) The local labor supply curve is not horizontal (i.e., labor supply is not perfectly elastic) despite high population mobility across regions because

a. increasing population leads to higher cost of living

b. firms are willing to pay higher wages to get additional workers

c. as wages increase, labor tax rates also increase
a. increasing population leads to higher cost of living
4) Decline in crime rates (due to decreasing children exposure to lead-based paint) _______________ wage rates in the city (holding everything else constant).

a. increases

b. decreases

c. does not affect
b. decreases
5) Decline in crime rates (due to decreasing children exposure to lead-based paint) _______________ land rents in the city (holding everything else constant).

a. increases

b. decreases

c. does not affect
a. increases
6) Because of climate change, air pollution increases in a city, causing more people to have health problems. This would lead to ______________ wages in the city and ____________ residential land rents.

a. higher / lower

b. lower / higher

c. higher / no effect

d. no effect on / lower
a. higher / lower
An "externality" is ...

a) a negative effect on an activity on a bystander

b) an unintended effect of an activity on the person pursuing the activity

c) an unintended (unaccounted) effect of an activity on third parties
c) an unintended (unaccounted) effect of an activity on third parties
The following is an example of "public good":

a) street lighting

b) public transportation (bus and train transit systems)

c) tap water
a) street lighting
Economies of scale imply that...

a) big factories can produce more units than small factories

b) big factories can produce at lower average cost than small factories

c) small factories can produce at lower average cost than big factories
b) big factories can produce at lower average cost than small factories
There is equilibrium in the location of people and firms in free land markets because...

a) land rents adjust so that shortages or surpluses are eliminated

b) the government adjusts tax rates so that shortages or surpluses are eliminated

c) more land can be produced cheaply to satisfy additional demand
a) land rents adjust so that shortages or surpluses are eliminated
In competitive markets, the typical firm makes __________ in the long run equilibrium.

a) negative economic profit

b) zero accounting profit

c) zero economic profit
c) zero economic profit
Which of the following is TRUE about externalities in free markets?

a) only negative externalities cause economic inefficiencies

b) only positive externalities cause economic inefficiencies

c) all externalities cause economic inefficiencies
c) all externalities cause economic inefficiencies
Historically, how cities developed in the U.S.?

a) They were first polycentric, then became monocentric

b) They were first monocentric, then became polycentric

c) They were first polycentric, then became monocentric, and are now polycentric again
b) They were first monocentric, then became polycentric
Suburbanization happened because (among other factors)

a) new laws restricted housing developments in central cities

b) transportation became cheaper

c) electricity became first available in peripheral (suburban) areas
b) transportation became cheaper
The suburbanization of cities over the 20th century caused central cities to

a) further develop as resources became better used

b) decay as resources declined when people and businesses moved away

c) become industrial areas as people moved away and land rents became cheaper for factories
b) decay as resources declined when people and businesses moved away
Trade is beneficial to all trading parties involved only if

a) the trading parties have different preferences (tastes) for the good being traded

b) the trading price is not higher than the buyer's opportunity cost

c) the trading price is not higher than the seller's opportunity cost
b) the trading price is not higher than the buyer's opportunity cost
Merchants (middlemen) became profitable because they took advantage of

a) economies of scale in transportation

b) economies of scale in production

c) special tax benefits offered by kings or emperors
a) economies of scale in transportation
The first trading cities developed

a) in hidden places to avoid taxation or robberies

b) in places that offered easy access to producers and consumers

c) in inhospitable places, where land remained cheap as the cities developed
b) in places that offered easy access to producers and consumers
Trade and cities developed as economies of scale in production reduced the

a) average cost of transporting goods

b) average transaction costs

c) average cost of producing goods
c) average cost of producing goods
In the factory city example, people would want to buy cheese from the factory if the cost of making cheese at home

a) is lower than the price of the factory cheese

b) is lower than the commuting cost plus the price of the factory cheese

c) is higher than the commuting cost plus the price of the factory cheese
c) is higher than the commuting cost plus the price of the factory cheese
The factory city size would increase if

a) transportation cost per mile went up

b) the factory productivity went up

c) the price of the factory good went up
b) the factory productivity went up
In equilibrium in a free land market, land rent equals

a) the land price paid by the owner when she bought it

b) the locational advantages provided by the land

c) the cost of building on the land
b) the locational advantages provided by the land
In equilibrium in a free land market, land price equals

a) the sum of the expected future monetary costs to be paid, brought to present value

b) the cost of building on the land

c) the marginal value of land
c) the marginal value of land
The value of an economic asset equals

a) the price originally paid when the asset was bought

b) the sum of the expected future returns, brought to present value

c) the returns generated by the asset in the current period
b) the sum of the expected future returns, brought to present value
In equilibrium in a competitive land market, if net rents and the discount rate of future values are constant over time, then

a) net rent = discount rate x price

b) net rent = (value - price) / discount rate

c) net rent = price / discount rate
a) net rent = discount rate x price
In equilibrium in a competitive land market, when the economy's long term interest rate goes up,

a) land prices go down, holding other factors constant

b) land prices go up, holding other factors constant

c) land rents go up, holding other factors constant
a) land prices go down, holding other factors constant
Holding other factors constant, if the input is more perishable than the output, the processing plant should be located

a) close to the input source

b) close to the market area

c) at a middle distance between the input source and the market area
a) close to the input source
Procurement cost refers to

a) the cost of searching for an input

b) the cost of transporting the input needed for production

c) the cost of delivering the output to the buyer
b) the cost of transporting the input needed for production
A factory should be located close to the market area if

a) the procurement cost (PC) is lower than the distribution cost (DC) per unit of the output

b) the procurement cost (PC) is higher than the distribution cost (DC) per unit of the output

c) the procurement cost (PC) per unit of input is higher than the distribution cost (DC) per unit of output
a) the procurement cost (PC) is lower than the distribution cost (DC) per unit of the output
A soft drink bottling plant needs 1 ton of syrup and bottles to produce 20 tons of bottled soft drink. The input-output weight ratio in this production process is

a) 20

b) 1/20 = 0.05

c) 0.20
b) 1/20 = 0.05
There are economies of distance in transportation in the following case:

a) the average cost of transportation decreases with greater distance transported

b) the average cost of transportation increases with greater distance transported

c) the average cost of transportation decreases as more units are transported together
a) the average cost of transportation decreases with greater distance transported
Labor costs are higher in market areas because (among other factors):

a) productivity of labor is lower in market areas

b) cost of living is higher in market areas

c) unionization of workers makes firms more profitable in market areas
b) cost of living is higher in market areas
One supply-side factor in the labor market that makes wage rates to be higher in "market areas" is

a) greater agglomeration economies make companies more productive

b) greater competition among employers, which forces them to pay higher wage rates

c) greater congestion, pollution, and crime
c) greater congestion, pollution, and crime
Over the 20th century, as labor costs have increased and transportation costs have decreased, production of goods moved towards places

a) where labor costs were the lowest

b) where total transportation costs were lowest

c) where the costs of non-labor inputs (materials, land, equipment) were the lowest
a) where labor costs were the lowest
A -1.8 tax elasticity of business activities implies that

a) to get a 1% increase in business activities, we need to reduce business tax rates by 1.8%

b) a 1 dollar increase in business taxation reduces business activities by $1.80

c) a 1% increase in business tax rates reduces business activities by 1.8%
c) a 1% increase in business tax rates reduces business activities by 1.8%
Which of the following tax elasticity of business activities should be larger in magnitude?

a) The intra-metropolitan tax elasticity

b) The inter-metropolitan tax elasticity

c) The international tax elasticity
a) The intra-metropolitan tax elasticity
Agglomeration economies refer to

a) cost savings that firms obtain by producing greater amounts of output

b) greater revenues that firms obtain by producing in the proximity of market areas

c) cost saving that firms obtain by producing in the proximity of other firms
c) cost saving that firms obtain by producing in the proximity of other firms
Localization economies refer to

a) cost savings in the proximity of production of other firms in the same industry

b) cost savings in the proximity of production in general

c) greater revenues due to location closer to market areas
a) cost savings in the proximity of production of other firms in the same industry
Agglomeration economies are due to

a) lower wage rates

b) the sharing of resources with other producers

c) proximity to input sources
b) the sharing of resources with other producers
In the presence of agglomeration economies, policies to attract businesses would be more successful if

a) it stimulated companies to spread across regions so that each region starts its own cluster

b) it stimulated greater clustering of companies, especially in the same industry

c) it provided tax incentives only for companies that do not benefit from agglomeration economies
b) it stimulated greater clustering of companies, especially in the same industry
If the elasticity of productivity to population size equals 0.05, then an urban area that has a population 200% greater will have a productivity rate that is approximately

a) 2.5% higher

b) 25% higher

c) 10% higher
c) 10% higher
Without government intervention, a city can keep growing (i.e., more people or firms will move in) as long as

a) agglomeration benefits are increasing

b) the pre-rent utility level in the city is below the level in other cities

c) benefits to the new residents or firms are higher than the costs
c) benefits to the new residents or firms are higher than the costs
Without government intervention, cities that are sub-optimal in size

a) will definitely shrink

b) will definitely grow to their optimal size

c) might grow to their optimal size or shrink
c) might grow to their optimal size or shrink
Without government intervention, cities that are too large (larger than optimal) in size

a) will quickly shrink to their optimal size

b) will keep growing, becoming even worse

c) won't likely grow, but might not shrink to their optimal size either
c) won't likely grow, but might not shrink to their optimal size either
Human capital refers to

a) machines that replace human labor

b) knowledge and skills that workers use in production

c) science and technology development
b) knowledge and skills that workers use in production
Since the 1980s, the revival of the Boston economy (now based on high-tech manufacture and services) was helped by

a) high unemployment and low tax rates (caused by the manufacturing decline)

b) large availability of human capital

c) low shipping costs and immigration
b) large availability of human capital