Urban Economics Study Guide
A. False, a single giant urban center is would not work if all production processes were weight gaining. First off, if a production process is weight gaining then the firm would have an incentive to locate next to markets in order to minimize transportation costs. A single urban center would be expensive in terms of transportation costs not only in location but the sheer size of a single giant urban center for all economic activities would surely encounter all the disamenities of urban concentration; crime, pollution, agglomeration diseconomies , extremely hight prices for land, etc.. Also, if a production process was weight gaining and this single giant urban center was near its market, it could still be inefficient because that firm could still have incentives to locate next to its raw materials. Take for example peach canneries who cannot afford to transport peaches for long distances because of the possible damage to its peaches.
B. False, its an axiom of urban economics that prices adjust to achieve locational equilibrium. So workers with the same skills will get different wages depending upon their location. Many firms locate in densely populated cities in order to take advantage of economies of scale and agglomeration economies. Along with these advantages come disadvantages; congestion, crime, etc. A worker's wage is determined by the cost of living and the non-pecuniary returns of the city. Those two factors are location specific. Some cities have a high cost of living with a small amount of amenties, those workers must be compensated more for their willingness to work there. Firms offer nominal wages that attract skill workers all the while calibrating them to the nuances of location. C. True, many cities exist because of the existence of economies of scale but that still leaves the question of why offices chose to locate in CBD's which happen to be very expensive and congested. The reason they locate in the CBD is the existence of agglomeration economies. Many of these offices depend on close personal interaction in order to facilitate business. These face to face interactions are easiest within the concentrated and varied environment of the CBD. Locating in other areas would increase commute time and push the office further away from clients, suppliers, and partners that they must interact with on a daily basis. Agglomeration economies giive firms incentives to locate in CBD's. CI. True, raising taxes so long as they go towards infrastructure or schools does in fact stimulate economic growth. Public expenditure that improves schools improves the education and therefore improves the labor pool, this makes the city more attractive to employers and eventually leads to job growth. Taxes that go towards infrastructure improve the cities networks, like the sewer system and the roads. These systems are very important to economic growth and when cities improve them they improve their chances for economic growth. This is not true with public welfare programs. When taxes are raised to fund programs that help the poor, the overall effect on jobs is negative. True, the elasticity of business investment with respect to the level of business taxation is higher within metropolitan areas than between metropolitan areas. When firms make their initial location decisions they have a number of priorities that are above taxes, including the availability of agglomeration economies and regional amenities. This is fleshed out it in the low value of the inter-regional business elasticities. When firms decide upon a region the priority of taxation rises. Since all the locations in the region would presumably have the same amenities and agglomeration economies the different areas within the metropolitan region would be good substitutes for one another. At this point the elasticity of taxation rises as business look to enjoy the maximum...