12 - Economics of Cities, Regulation, and Local Public Finance Flashcards
(51 cards)
What are the five economic forces that shape city size?
They include economies of scale, economies of scope, economies of density, network efficiencies, and agglomeration economies.
Why are these economic forces important for cities?
They help explain how cities lower production costs, share resources, enhance product variety, benefit from widespread network effects, and generate positive spillovers through clustering—all of which drive urban growth and productivity.
What are economies of scale?
They occur when the average cost of production falls as the volume of output increases—producing 1,000 pies, for example, is more cost-efficient than producing just 10.
How do economies of scale influence location decisions?
Large-scale production can lower costs enough to offset transportation expenses, which explains why industries like auto assembly or repair shops tend to concentrate in fewer locations rather than being spread across many small cities.
What are economies of density?
They arise when producers share resources (inputs), lowering costs for all involved.
Can you provide examples of economies of density?
Examples include universities sharing libraries and research facilities, sports teams sharing stadiums, and public infrastructure like utilities and transportation systems serving multiple entities.
Define economies of scope.
Economies of scope occur when producing a variety of related products together reduces the average cost of production compared to producing them separately.
How do economies of scope benefit businesses?
They allow businesses to share resources across different products—for instance, a bakery making both pies and cookies can use the same equipment more efficiently than if it specialized in only one product.
What are network efficiencies (or network externalities)?
They occur when a product or service becomes more valuable as more people use it, enhancing its overall utility.
Give examples of network efficiencies.
Examples include social networks (like LinkedIn), local telephone services, and even languages—each becoming more useful as adoption increases.
What are agglomeration economies?
They are the benefits arising from firms and industries clustering together, which leads to shared resources, knowledge spillovers, and higher overall productivity than if firms operated in isolation.
Why do agglomeration economies attract firms to clusters?
Clusters create a “new” resource—access to specialized labor, ideas, and innovation—that improves productivity and makes the area more attractive for additional firms and investment.
What are some well-known examples of economic clusters?
Examples include Detroit (“Motor City”) for the auto industry, NYC (“Wall Street”) for finance, Northern California (“Silicon Valley”) for technology, and Southern California (“Hollywood”) for entertainment.
How do clusters relate to agglomeration economies?
Clusters are physical concentrations of interconnected businesses that benefit from agglomeration economies, leveraging shared resources and expertise to drive growth.
What economic factors influence the shape of cities?
Proximity to resources, transportation costs, and the benefits of agglomeration all play key roles in determining urban form.
Why is the scarcity of ideally located land significant?
Because ideally located land is limited—only about 6% of U.S. land is developed—making it a critical and scarce resource that shapes how and where cities expand.
In a unidimensional location model with a uniform population, where should a single business locate?
The business should locate at the median point, ensuring that half of the customers lie on each side, thus minimizing overall travel distances.
How do two competing businesses choose their locations in this model?
When two businesses compete, they tend to position themselves symmetrically around the median to capture the largest share of customers while minimizing transportation costs.
What complications arise if the population is non-uniform in a unidimensional location model?
If people are not evenly distributed, the optimal location shifts toward areas with a higher concentration of potential customers, and businesses may adjust their placement to better serve these clusters.
How might urban transportation networks affect the predictions of a unidimensional location model?
Efficient transportation networks can reduce effective distances, altering optimal locations by making it easier for customers to travel, thereby influencing business clustering and city shape.
What factors continue to shape the form of cities in the 21st century?
Proximity to resources, transportation costs, and the limited supply of ideally located land remain fundamental, just as they did in ancient urban development.
Why is only a small percentage of U.S. land developed significant?
With only about 6% of U.S. land developed, the scarcity of well-located land drives intense competition and significantly influences urban planning and economic activity.
According to Furman, what are some problems associated with land use restrictions?
Land use restrictions can impede economic growth by limiting agglomeration economies, reducing labor mobility, and contributing to volatile housing price bubbles, all of which lower living standards.
How do land use restrictions affect economic productivity?
They prevent people from relocating to areas with greater agglomeration benefits, which reduces overall productivity and diminishes employer-employee match quality.
