Economics 7500 – Winter 2009
• Syllabus and Course Page
• Urban Economics
• Allen C. Goodman
© Allen C. Goodman, 2009
Economics 7500 – Winter 2009
• Office Hours: TTh 3:00 – 4:30, or by appointment
• Office location: 2145 FAB
• Phone: 313/577-3235; e-mail:
allen.goodman@wayne.edu
• Department and Course Web-site:
http://www.econ.wayne.edu/agoodman/
© Allen C. Goodman, 2009
Economics 7500 – Winter 2009
• This course provides an introduction to the
economic intersection of public and urban
problems. We will look at issues such as land use,
housing, race, poverty, education, crime, and
urban economic growth.
• The text materials will be made available at the
library and on the web.
© Allen C. Goodman, 2009
Economics 7500 – Winter 2009
• Students will be evaluated on written assignments
(30%), class presentations (20%), a mid-term
exam (20%), and a final exam (30%).
• The final exam, as noted on the University web
site will be:
•
• Thursday, April 30, from 5 P.M. to 7 P.M - 30%.
© Allen C. Goodman, 2009
The Curve
The following percentage curve will guide the grading policy in the course.
90 – 100 A ;
85 – 89.9 A-;
80 – 84.9 B+;
75 – 79.9 B ;
70 – 74.9 B- ;
65 – 69.9 C+ ;
60 – 64.9 C ;
55 – 59.9 C- ;
Below 55 F
Any grade under B- is considered unsatisfactory for graduate work.
© Allen C. Goodman, 2009
What is Urban Economics?
• What does urban economics do that isn’t
done in other types of microeconomics?
We look at space.
We look at land.
We look at the prices of space and land. We
call these land rents.
© Allen C. Goodman, 2009
What is Urban Economics?
• Why do cities exist?
There are some scale economies.
It pays for people to work close together.
© Allen C. Goodman, 2009
What is Urban Economics?
• Problems that are particularly urban in
scope.
Poverty
Housing
Education
Crime
© Allen C. Goodman, 2009
What is an urbanized area?
Central
City
Density >
1000/sq. mile
© Allen C. Goodman, 2009
What is an urbanized area?
Urbanized Area
Central
City
DensityArea
>
Urbanized
1000/sq.mile
Population > 50,000
© Allen C. Goodman, 2009
What is a metropolitan area?
County
Urbanized Area
Central
City
Urbanized
Area
Pop > 50,000
or total Population© Allen
> 100,000
C. Goodman, 2009
What we’ll see
Density
0
Distance from Central Place
© Allen C. Goodman, 2009
What we’ll see
Land Rent
0
Distance from Central Place
© Allen C. Goodman, 2009
WHY CITIES?
• CONSIDER A WORLD WITHOUT CITIES. MEASURE
DISTANCE IN ONE DIMENSION.
1. TWO (2) HOMOGENEOUS NON-PRODUCED
FACTORS OF PRODUCTION - LAND, AND LABOR.
2. ALL INPUTS AND OUTPUTS ARE PERFECTLY
DIVISIBLE.
3. WELL-BEHAVED PRODUCTION AND UTILITY
FUNCTIONS.
4. CONSTANT RETURNS TO SCALE (CRTS) IN EACH
INDUSTRY.
5. INPUT AND OUTPUT MARKETS ARE PERFECTLY
COMPETITIVE.
© Allen C. Goodman, 2009
ALSO:
6. WORKERS ARE PERFECTLY MOBILE.
7. LAND IS PERFECTLY IMMOBILE, BUT QUALITY IS
THE SAME EVERYWHERE.
ALL OF THESE ARE GOOD STANDARD MICRO
ASSUMPTIONS, AND GIVE GOOD STANDARD
MICRO ANSWERS.
ALL OF THIS IMPLIES THAT:
-- LAND RENTS ARE THE SAME EVERYWHERE
-- LAND USAGE IS THE SAME EVERYWHERE.
© Allen C. Goodman, 2009
KEY !!!
CONSTANT RETURNS TO SCALE (CRTS) ALLOWS EACH
PRODUCTIVE ACTIVITY TO BE CARRIED OUT AT
ARBITRARILY LOW LEVELS WITHOUT INEFFICIENCY
(EVERYONE IS HIS/HER OWN FACTORY). EVERYONE
PRODUCES EVERYTHING.
IN EQ'M, LAND RENTS ARE THE SAME EVERYWHERE
(BECAUSE OF LABOR MOBILITY) –
IF NOT, WORKERS ARE TOO PLENTIFUL SOMEWHERE, TOO
SCARCE, ELSEWHERE.
WORKERS WILL ALWAYS MOVE TO EQUALIZE VMPLABOR
(AND DE FACTO VMPLAND -- SINCE THINGS ARE
DETERMINED BY LABOR/LAND RATIO). THE LABOR/LAND
RATIO IS THE SAME EVERYWHERE, SO THE LAND RENT
EQUALS VMP OF LAND EVERYWHERE.
© Allen C. Goodman, 2009
KEY !!!
INFINITE DIVISIBILITY IMPLIES THAT ALL INPUTS AND
OUTPUTS NECESSARY TO MEET THE DEMANDS OF
CONSUMERS CAN BE LOCATED NEAR WHERE THE
CONSUMERS LIVE. INCREASED CONCENTRATION
ANYWHERE LEADS TO LOWER WAGES (LOWER VMPLABOR).
WORKERS COULD MOVE, AND HAVE MORE MONEY TO
SPEND. IN EQ'M, NO $$$ NEED BE SPENT ON
TRANSPORTATION (EVERYONE PRODUCES EVERYTHING
FOR HIM/HERSELF).
CRTS AND UNIFORM DISTRIBUTION OF LAND (FACTORS) ARE
CRUCIAL. WITH CRTS, THE DESIRE TO AVOID
TRANSPORTATION COSTS LEADS TO A UNIFORM DENSITY
OF POPULATION AND ECONOMIC ACTIVITY (SINCE ALL CAN
BE PRODUCED AT A SMALL SCALE).
© Allen C. Goodman, 2009
WHY, THEN, DO WE SEE CITIES??
WE MUST ACCOUNT FOR THE AGGLOMERATION THAT WE
KNOW CHARACTERIZES URBAN ACTIVITIES. WHY DO WE
SEE CAPITAL/LAND RATIOS THAT ARE HUNDREDS OF TIMES
AS LARGE IN ONE PLACE THAN IN ANOTHER?
1. FACTOR DIFFERENCES AMONG AREAS.
IN THE TRADE LITERATURE, HECKSCHER-OHLIN
CONDITIONS IMPLY THAT VARYING FACTOR PROPORTIONS
DRIVE TRADE IN OTHERWISE IDENTICALLY
TECHNOLOGICALLY EQUIPPED AREAS. EVEN WITH THE
SAME PRODUCTION FUNCTIONS, FACTOR DIFFERENCES 
TRADE. IN 2 X 2 MODEL, LAND INTENSIVE COUNTRY
TRADES LAND-INTENSIVE GOOD WITH COUNTRY THAT IS
MORE LABOR INTENSIVE, FOR THE LABOR-INTENSIVE
GOOD.
© Allen C. Goodman, 2009
WHY, THEN, DO WE SEE CITIES??
WHY? LAND NEAR SHIPMENT POINTS IS
DESIRABLE. IF TRADE IS DESIRABLE, SO IS
MINIMIZATION OF TRANSPORT COSTS. THIS
MAKES LAND NEAR THE SHIPMENT POINTS
DESIRABLE. EQ'M OCCURS WHEN LAND VALUES
ON THE LESS DESIRABLE LAND EQUALIZE THE
TRANSPORTATION COST DIFFERENTIALS.
THE SAME THING MAY OCCUR WITHIN AN AREA
(COUNTRY) AS WELL, FOR INTRA-REGIONAL
TRADE.
© Allen C. Goodman, 2009
SCALE ECONOMIES
ASSUME SCALE ECONOMIES REQUIRE CONTIGUOUS
PRODUCTION IN EQ'M, LARGE AMOUNTS ARE PRODUCED
IN SOME PLACES; NONE ELSEWHERE. PRODUCERS OF
INPUTS WILL WANT TO BE NEAR THE FIRM TO MINIMIZE
TRANSPORTATION COSTS. SO WILL THE WORKER, SO WILL
ALL OF THE OTHER ECONOMIC UNITS.
THIS LEADS TO AGGLOMERATION CENTERED ON
PRODUCTION OF THE COMMODITY WITH SCALE
ECONOMIES. THUS THE LAND VALUES, DENSITIES, OUTPUTLAND RATIOS ALL DECREASE WITH DISTANCE FROM THE
CENTER OF THE URBAN AREA.
THE TWO THEORIES LEAD TO 2 DIFFERENT TYPES OF CITIES
1. CITIES GENERATED BY REGIONAL COMPARATIVE
ADVANTAGE TRADE WITH EACH OTHER BECAUSE REGIONS
ARE DIFFERENT.
2. CITIES GENERATED BY SCALE ECONOMIES TRADE WITH
HINTERLAND, NOT WITH
OTHER
© Allen EACH
C. Goodman,
2009
LOESCH/Industry
LOESCH EXTENDS SCALE ARGUMENTS TO INDUSTRIES WITH
DIFFERENT SCALES. THAT IS, LARGE CITIES EXPORT GOODS
TO SMALLER CITIES; SMALLER CITIES DO NOT EXPORT UP.
LARGE CITY ACTIVITIES -> THOSE REQUIRING LARGE
SCALES, INCLUDING CULTURAL, SPORTS, SOME PUBLIC
SERVICES.
SMALL CITY ACTIVITIES - > LEGAL, MEDICAL, BANKING.
SO, CITIES FUNCTION TO FACILITATE PRODUCTION AND
EXCHANGE BY THE NEARBY LOCATION OF ACTIVITIES !!!
© Allen C. Goodman, 2009
LOESCH/Industry
THIS HAS SOME PARTICULAR INTEREST IN OTHER FIELDS AS
WELL. IN THE HEALTH ECONOMICS FIELD, THERE IS A LOT
OF CONCERN ABOUT THE "SHORTAGE" OF PHYSICIANS IN
SMALL TOWNS, WHILE THERE MAY BE A "SURPLUS" IN THE
BIG CITIES. SUPPOSE THAT WE THINK OF VARIOUS LEVELS
OF PRACTICE:
MEDICAL CENTER; HOSPITAL; CLINIC; PRIVATE OFFICE.
SOME CITIES MAY ONLY BE ABLE TO SUPPORT THE SMALLEST,
E.G. PRIVATE OFFICE. LARGER CITIES MAY BE ABLE TO
SUPPORT PRIVATE OFFICE AND CLINIC ETC. IF THERE ARE
SCALE ECONOMIES THEN THE "MISALLOCATION" OF
PHYSICIANS MAY NOT BE A MISALLOCATION AT ALL.
© Allen C. Goodman, 2009
ONE FURTHER CONDITION
THERE MUST BE A SURPLUS IN THE AGRICULTURAL SECTOR.
OTHERWISE, THOSE IN THE CITIES WOULD HAVE NOTHING
TO EAT. THE STORY GOES SOMETHING LIKE THIS.
A. FARMER TAKES GRAIN TO NEAREST TOWN. TRADES IT
FOR THE GOODS THAT HE NEEDS, SOME OF WHICH IS
PRODUCED THERE, MOST OF WHICH IS TRADED FOR FROM
ABOVE.
B. MERCHANT TRADES THE GRAIN SURPLUS THAT HE/SHE
HAS AFTER TAKING CARE OF NEEDS, "UP THE CHAIN" FOR
MORE SOPHISTICATED STUFF.
C. PEOPLE UP THE CHAIN ARE WILLING TO BUY GRAIN, TO
STAY ALIVE. WITHOUT GRAIN SURPLUS, NO ONE CAN
AFFORD TO MOVE OFF OF THE FARM
© Allen C. Goodman, 2009
TWO REASONS, THEN FOR CITIES
1. SCALE ECONOMIES
2. INTERREGIONAL TRADE
MAJOR ADVANTAGES TO PROXIMITY
1. LOW TRANSPORTATION AND EXCHANGE COSTS
2. TAKE ADVANTAGE OF SCALE ECONOMIES
MAJOR DISADVANTAGES
1. ULTIMATELY DIMINISHING RETURNS TO RATIOS OF NONLAND TO LAND INPUTS.
2. EXTERNALITIES !!! NOISE SMOKE, DISEASE, ETC.
© Allen C. Goodman, 2009