Urban and Regional Economics exam 1

Professor Zach Hawley Test 1

Terms in this set (...)

Urbanized Area
A place with
- a very high population density, compared to the surrounding area, and
- a total population greater than some minimum number (to distinguish urban areas from small towns)
Metropolitan Statistical Area (MSA)
serve to group counties and cities into specific geographic areas for the purposes of a population census and the compilation of related statistical data.
- Population greater than 50,000
Micropolitan Statistical Area
are urban areas in the United States based around an urban cluster (urban area) with a population of 10,000 to 49,999.
- geographic entity used for statistical purposes based on counties and county-equivalents.
Why do Jobs Cluster?
1) Comparative Advantage
2) Internal Scale Economies
3) Agglomeration Economies
-Allow people to Specialize
-Locating close keeps transaction costs lowest
Comparative Advantage
- based on opportunity costs
Internal Scale Economies (Economies of scale in production)
Answers the question: Why do Jobs Cluster?
Efficient production in large quantities
-if i double inputs im going to more than double the outputs
-> why does this happen?
a) Factory Specialization - people have a single task
b) indivisible inputs - minimum efficient scale
Agglomeration Economies
Efficient production in many factories
- we are making a positive externality argument
-two ways for it to work:
1) Localization Economies
2) Urbanization Economies
Localization Economies
Positive Externalities within Industry
A) Scale economies in the intermediate input
B) Labor Market Pooling
C) Easier Communication and Coordination with suppliers and customers
D) Knowledge spillovers - diffusion of technology and exchange of information
Urbanization Economies
Advantages from being in larger areas (external to the firm/industry)
A) Labor Market pooling - a bigger pool of labor w/ differing abilities or skills
B) Inter Urban area transportation costs
C) Cross-industry Technology spillovers
D) Economies of scale in Urban Infrastructure
Threshold Demand
The minimum demand that is required for an activity to take place
Location Quotient
How we can measure economic specialization in an urban area.
-defined for industry i in a given area
-Li = ei/Ei
- ei = the % of the urban area work force employed in industry i
- Ei = the % of the NATIONAL work force employed in industry i
- Li > 1 => Specialize and Export!
-Li < 1 => Import
Why do retail firms cluster?
Cause of two competing effects:
1) Price Cutting Effect
2) Market Size Effect
Price cutting effect
More competitors in the same area means they will have to lower the price to entice more buyers to purchase
=> could lead to lower prices
Market Size effect
Entice more buyers to come to that area increasing the chance the customer finds a product they like
-EX: Chance of liking a car at a given dealership: 25% Not liking = 75%
=> could lead to higher prices
Transfer Oriented Firms
firm in which transportation costs are a major factor in location decision
-Transportation costs are the sum of two costs:
1) Procurement Costs - transporting inputs to firm
2) Distribution Costs - transporting outputs from firm
=> firm locates at the input source
Monetary Weight
Matters for transportation costs
= weight of input (output x transportation rate)
Process Oriented Firms
use ubiquitous inputs, but the prices of the inputs vary more across space than do differences in transportation costs for shipping outputs to various markets
-Attracted to locations w/ lower input prices or greater input productivity
- Drawn to places with strong Urbanization economies and Localization economies
Amenity Oriented Firm
Low transportation variation and low input price variation across space
-Attracted to locations with amenities that employees will like
ex: - sports teams
- cultural activities
- attractive climates
EX's of firms: Technology, Research and Development, consulting
technique of carrying water bound cargo overland to avoid obstacles
Portage and Path dependence
Hoyt Bleakley and Jeffery Lin
Idea: Natural advantage is known to cause a spark for city location, but what happens when natural advantage goes away?
-Breaks the link b/w natural advantage and scale
does path dependence matter?
-Path dependence matters
Why? How?
- Sunk Costs & Scale economies
Empowerment Zones
- Andrew Hanson
-Set of tax incentives targeted to certain areas of select cities established by federal gov't
-Idea: Empowerment zones are supported to attract businesses
- compare locations w/ empowerment zones to those that applied (and qualified) but were rejected
- uses instrumental variables* to deal with endgencity -> Political representation
So, does the empowerment zone impact employment, poverty, property values?
-Instrumental values show NO effect on employment
- Poverty: goes up
- Property values: go up
Compare and contrast the concepts city and urban area as used in this course. What are some of the difficulties with using such terms?
How does comparative advantage facilitate trade?
The Principle of Comparative Advantage leads producers to specialize in the production for which they have the lowest opportunity cost.
-Specialization leads to interdependence and greater cooperation among firms.
-Specialization lowers production costs and market prices for traded products.
What are location quotients? What information do location quotients less than one, equal to one, and greater than one convey about a particular urban area?
Location quotients allow us to measure economic specialization in urban areas. If the location quotient is less than 1, then that urban area needs to import. If the location quotient is greater than 1, then that urban area needs to specialize and export. If the location quotient is equal to one, then the urban area needs to neither export, import, or specialize.
Describe and contrast market oriented firms with input oriented firms (use the graphs to help with the description).
Market oriented firms are output driven, they locate at the market and are considered 'weight-gaining'. Input oriented firms, also known as Resource oriented, are input driven and locate at the resource, they are classified as 'weight losing'. Firms are considered oriented if their inputs are bulky, perishable, dangerous, or fragile.