Practice Problems
1. Explain why a person with unique, rare preferences may be better off residing in a city.
What is the consequence of that for inequality in terms of “happiness” in cities versus
in rural areas, all else constant?
2. Give me two examples of a policy that aims to improve the life of a certain subgroup of
people in the city, but it may instead be harming that exact subgroup. Explain your
logic.
3. Explain three reasons why it may make sense for two firms in the same industry to
want to locate close to each other.
4. For each example of an aggregated problematic outcome that I give you, (i) explain a
decision individuals make which leads to an externality, (ii) describe this externality
and explain how it contributes to the aggregated outcome, and (iii) explain what
incentive we could give to people to avoid them making decisions that, in the aggregate,
contribute to that outcome.
(a) Traffic jams in cities.
(b) Air pollution in cities.
(c) Racial segregation in city schools.
5. Give me two examples of the “tragedy of commons” problem in cities, and explain
your reasoning.
6. There are many reasons why the U.S. has experienced a process of urban sprawl in the
past few decades. Give me three examples that have to do with externalities. If you
were a policy maker, what could you do to make sure each of these externalities did
not exist?
7. Give me 2 examples of zoning laws that somehow restrict the use of the land, and
explain why these laws may be inefficient (i.e., may be leaving money in the table).
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8. There is a new mall being built in downtown Atlanta. My job is to choose, among
the many applicants, which stores will have the right to locate there. After I discuss
with world experts in each of the categories, I choose one store for each category. (For
example, one Indian restaurant, one burger joint, one men’s clothes store, one men’s
shoe store, etc). Can you suggest a better way of allocating stores to the mall than my
approach? By “better” I mean in terms of maximizing consumer surplus plus producer
surplus. Explain your reasoning.
9. “As schools attempt to improve their quality by paying attention to the preferences of
their existing students, segregation increases.” Explain.
10. Imagine a world with no intentional discrimination with respect to gender. Explain
why women may be still exposed to a less productive “referral network” for jobs than
men do, and what is the consequence of that.
11. Racial discrimination is not equal to racial segregation. Explain.
12. Explain why social movements (e.g., civic rights movements, me too) are more likely
to happen in a more diverse society, all else constant.
13. There is a city with 1 million people. The government has 100 million dollars to spare,
and it is considering two policies to combat inequality. In policy A, the government
spends all available money on what they think poor people need the most. In policy
B, the government gives away all money directly to each person (the same amount
for each person). Give me an argument for why policy A could be better to combat
inequality? Now give me an argument for why policy B could be better to combat
inequality?
14. (The New Geography of Jobs) Explain the reasoning for this statement: “Cities that
attract highly educated people are more resilient to bad shocks in the economy.”
15. (The Big Sort) Why is it good for society that similar people sort to live around similar
people? Why is it bad?
16. (The Death and Life of Great American Cities) Explain why a higher variety of venues
in a neighborhood may lead to less crime in that neighborhood?
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17. (Triumph of the City) Explain the reasoning for this statement: “Restricting buildings
to have a maximum allowed height may lead to a less diverse population in the city.”
18. (Happy City) Taking away all traffic signs in a dangerous intersection may reduce
accidents. Explain why.
19. (Walkable Cities) Many cities in the U.S. impose restrictions that a establishment
must offer 1 car parking slot for free for a given number of square footage. Why is this
inefficient (i.e., leaves money in the table)?
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