Urban Economics
Multiple Choice
1. Which of the following would be an example of a resources-oriented
industry?
a. Bottled soft drinks
b. Law firms
c. Lumber
d. Residential construction
2. Which of the following is not a reason why cities tend to form?
a. Constant returns to scale in production
b. Comparative advantage in production
c. Economies of scale in exchange
d. Knowledge spillovers
3. Cities like Boston and Washington DC have much higher rents near their city
centers and near subway lines. This phenomenon is an example of
a. Firm clustering
b. Constant returns to scale in production
c. Locational equilibrium
d. Input sharing
4. Research studies have found that patent intensity is positively correlated
with employment and employment density across cities. This evidence
supports the existence of
a. Knowledge spillovers
b. Labor market matching
c. Labor pooling
d. Input sharing
5. Economies of scale are most likely to be found in a firm with
a. Many workers
b. High fixed costs
c. Division of labor
d. All of the above
Short Answer
6. Consider a farming region surrounding a market. Farmers can grow and sell
either watermelons or lumber. The farmland is equally productive, so a single
acre can produce 1 ton of watermelons or 1 ton of lumber in a month. The table
below shows the transportation costs and market prices of each crop.
In the graph below do the following.
i. Draw the rent curve for watermelons and the rent curve for lumber.
ii. Label each curve clearly and mark the X and Y intercepts.
iii. Indicate the regions in which each crop will be grown.
iv. Label the distance from the market at which farmers are indifferent
between growing watermelons and lumber.
v. Clearly identify the resulting bid-rent curve for the region.
Transportation Cost/ton Market price/ton
Watermelons 60 90
Lumber 30 60
7. List five causes of firm clustering.
8. If a firm is market-oriented, which transportation costs are highest?
0″
10″
20″
30″
40″
50″
60″
70″
80″
90″
100″
0″ 0.5″ 1″ 1.5″ 2″ 2.5″ 3″
Rent%
Distance%to%market%
9. The basic urban model we studied assumed a fixed population, agricultural land,
and no migration. According to the model what happens to each of these
measures as the distance from the CBD decreases?
(a) Price per square foot of floor space
(b) Dwelling size
(c) Land price per acre
(d) Building height
(e) Commuting cost per mile
(f) Total rent
(g) Disposable income
(h) Population density
(i) Dwellings per acre
(j) Agricultural rent
10. Suppose innovations in farming lead to an increase in agricultural land rent from
rA0 to rA1. Answer the following questions using the predictions of the urban
model. Assume that the supply-demand equilibrium holds, and that the city’s
population must fit within its boundary.
(a) Illustrate the effects of the increase in land rent on the diagram below. Be
sure to label the change(s) to the city boundary, �̅, clearly.
(b) What happens to the building heights?
(c) What happens to dwelling sizes?
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