Urban Economics Assignment 1
Student Name: HAO LI
Student Number: 997456097
1. a) The gains from trade are +1 shirts for North and +1 shirts for South. b) A trading city won’t develop because the opportunity cost of exchange for North is 2 shirts, which exceeds the gross gain of 1 shirt.
c) Suppose an innovation in transportation decrease the transaction time. A trading city will develop if the transaction time is less than 15 minutes because the opportunity cost of exchange is 1 shirt for the North and 1/4 shirt for South. 2. a) The labor used in transporting products from production sites to trading firms will decrease because the transmitter, with 0 MC, replaces with the wagons. b) The volume of trade in the region will increase because the transmitter decreases the unit transport cost to 0, allowing the full exploitation of differences in comparative advantage that generate comparative advantage and trade. c) The labor used in processing transactions will increase because the volume of trade increases.
d) The trading city will grow if the gains in the labor used in processing transactions exceed the losses in labor used in transportation. e) Suppose the transmitter technology changes, and it becomes economical for an individual household. The trading city will disappear because the absence of scale economies in exchange means that individual households will engage in direct trade.
a) An innovation in production that doubles labor productivity in factories will shorten the stem of the martini glass from 4/12 loaves to 2/12 loaves because cost per shirt = the labor cost per hour / the output per hour.
b) The width of the market area increases from 16 miles to 20 miles because 2/12+10/12=12/12.
c) An innovation in transportation that doubles consumer travel speeds will decrease the slope of the martini glass 1/12 loaf per mile to 1/24 loaf per mile. d) The width of the market area increases from 20 miles to 40miles because 2/12+20/24=1.
a) The equilibrium price for coral music is 1/4 loaf because 1/4*80 listeners covers the opportunity cost of 20 loaves for the singers.
b) The stem of the martini glass is 1/4 loaf and the slope is 1/8 lad per mile, so the market area is 6 miles on each side because 1/4+6/8=1
c) The horizontal cost of home production is now at 1/2 loaf instead of 1 loaf. the market area is 2 miles on each side because 1/4+2/8=1/2.
11 a) Most breweries locate close to their customers because beer production is a
weight-gaining activity because breweries add local water to other ingredients. Brewing is a market-oriented industry, so it locates close to its consumers to economize on transport cost.
b) Most wineries locate close to their input sources because wine production is a weight-losing activity and the grapes are costly to transport because of the spoilage. Firms in the materials-oriented industry locate close to input suppliers to economize on transport cost.
2 a) In an isolated site, the wage is variable and the firm’s workforce is fixed because the supply of labor perfectly inelastic.
b) In a cluster, the wage is fixed and the firm’s workforce is variable because the supply of labor is perfectly elastic.
b) During good time, the benefit of being in the cluster as opposed to being isolated is $550, compute as (40-30)* 50+(1/2)*(40-30)*10.
c) During bad time, the benefit of being in the cluster as opposed to being isolated is $450, compute as (30-20)*40+(1/2)*(30-20)*10
d) The benefit exceeds the cost because a firm in a cluster changes its workforce when demand changes.
b) In the typical big city high demand, his profit is $135 computed as (1/2)*(18-9)*30.
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