ECO 435 Exam 2

maximum rent that the potential user is willing to pay for one unit of a given lot of land

What is the maximum amount that a factory will be willing to bid for land at location d=3?

To get a firm’s land bid-rent curve, ask how much the
firm would be willing to pay for one unit of land at the given location.

• For each location, greater potential profit implies
___________ willingness to pay, i.e., ____________
land bid-rent.

• The land bid-rent is the amount that exhausts all potential economic profits at that location (i.e., it
makes economic profit to equal ___________).

The _________________ function represents the value of one mile of distance that is embedded in one unit of land.

What determines the magnitude of this slope?

What differences between offices and factories affect their land bid-rents?

q office q factories

t office t factories

if two groups of land users locate in a monocentric city, then the group that has the steeper bid-rent curve locates
closer to the center

Explain the differences in the size of the slopes.

What these differences in the size of the slope imply about where offices and factories locate?

If development costs are lower with factor substitutions, then potential profits are ____________. But if so, land bid-rents should be __________.

Because of factor substitution, land bid-rents in the
center are much ____________ than in the suburbs
(so transportation and communication advantages are not
the only reasons for higher bid-rents).

Where should buildings be taller in a monocentric city?

To get a household’s land bid-rent curve, ask how much
the household would be willing to pay for one unit of
land at the given location.

• For each location, greater potential utility implies
____________ land bid-rent.

• Therefore, the land bid-rent is the amount that exhausts all potential advantages of locating at the
given location. In other words, the land bid-rent makes the utility advantage (gain) to equal ________.

Since the group of users that is willing to pay the most gets the land at each location, actual land rents in the center are much _____________ than in the suburbs.

At the border distance d in a monocentric city, how much will the urban land bid-rent be in equilibrium?

Assume households locate the farthest within the city.

Where should houses and facilities be bigger (in the amount of floor space) in a monocentric city? Explain.

Thus, the value of one unit of land at A must be _____________ than at B, implying that bid-rent of land per
unit at A is _____________.

Now, notice that both factor substitution and consumption
substitution make less land to be used (per firm or household) when land price is __________ (b/c then space is built vertically and users occupy less space, respectively).
Hence, because land bid-rents are higher when land is used more intensively, bid-rents should be even higher where land price is ___________.

3 Reasons why actual land rents are much higher in the center than in the suburbs:

How does population density change with distance in a monocentric city?

Population density = population,
area

so if land area per user is smaller, then density is __________.

Factor and consumption substitutions imply more intensive use of land (less land per person or worker) where land price is
_____________. Thus, population or employment density in should be _____________ in such places.

B/c central areas have ____________ land price, population or employment density is ____________ in central areas.

Land prices are higher in central locations, thus causing

a. buildings to be developed with fewer floors there.
b. houses to be smaller there.
c. population density to be smaller there.

If land use is smaller in areas with high land price, then (in
monocentric cities)

a. land bid-rents must be lower in central areas.
b. land bid-rents must be much higher in central areas.
c. land bid-rents should be the same everywhere.

Suppose a monocentric city has only factories and houses. If the
factories' bid rent curve is represented by rF(d)=11,000-5,000d and
the households' bid-rent curve is represented by
rR(d)=1,500-250d, which users are located more centrally?

a. factories
b. households
c. only households locate in this city (there are no factories)
d. only factories locate in this city (there are no households)

Suppose a monocentric city has only offices and houses. If offices'
bid rent curve is represented by ro(d)=7,000-2,000d and
households' bid-rent curve is represented by rR(d)=1,450-150d,
then offices will outbid households in the central area. At which
distance (d) from the center do households start to outbid offices?

Hint: try plotting the bid-rent curves for offices and households in
the same diagram.

a. d=2 miles b. d=1 mile
c. d=3 miles d. d=4 miles

Because of factor and consumption substitutions, population
density in a monocentric city is

a. higher in the proximity of the center.
b. lower in the proximity of the center.
c. the same everywhere.

Buildings are taller in the proximity of employment centers b/c of

a. consumption substitution in the use of space
b. factor substitution in construction
c. factor substitution in construction and consumption substitution

Houses are smaller (in square footage) in central areas because of

a. factor substitution in housing construction
b. factor substitution in housing construction and consumption
substitution in the use of space.
c. consumption substitution in the use of space.

Regarding residential land use, consumption substitution refers
to _________________ when land price is higher.

a. the use of more capital and less land in the construction of houses
b. the use of more land and less capital in the construction of houses
c. the consumption of more housing space and less of other goods
d. the consumption of less housing space and more of other goods

The non-residential bid-rent for a lot of land

a. is determined by the amount of unused land available in the area.
b. reflects how profitable that location is for the potential businesses.
c. is equal to the residential bid-rent for that same lot of land.

In order to find the land bid-rent equation for households in city
X, we must first find

a. how much other land users (e.g., offices, factories, farmers, etc) are
willing to pay for land in each location of that city.
b. what is the utility advantage of locating in each location of the city
relative to other places.
c. the wage rate that makes utility to equal zero in the city.

Land rents are much higher in the center of monocentric cities
because of all of the following, EXCEPT:

a. factor substitution in land development.
b. central location reduces the need for transportation and commuting.
c. land users in central areas demand larger lots of land.

In regards to residential land use, factor substitution refers to
_________________ when land price is higher.

a. the use of more capital and less land in the construction of houses
b. the use of more land and less capital in the construction of houses
c. the consumption of more housing space and less of other goods
d. the consumption of less housing space and more of other goods