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MSA FIPS to CBSA FIPS in Class’ Website

MSA FIPS to CBSA FIPS in Class’ Website. Discussion. Big League Cities or Big League Losers Are Sports Facilities a Good Public Investment? What is the market failure? Should tax payers pay for it?. Discussion (Cont) Table 1 Siegfried and Zimbalist (JEP, 2000).

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MSA FIPS to CBSA FIPS in Class’ Website

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  1. MSA FIPS to CBSA FIPS in Class’ Website

  2. Discussion • Big League Cities or Big League Losers • Are Sports Facilities a Good Public Investment? • What is the market failure? • Should tax payers pay for it?

  3. Discussion (Cont) Table 1 Siegfried and Zimbalist (JEP, 2000)

  4. Market Area and the Central Place Theorem Chapter 5

  5. Goal of Today’s Class • Explore the interactions between different cities in a regional economy • Understand the urban hierarchy (why cities differ in size and scope) • Introduce the Central Place Theorem

  6. Cities in the United States (Source U.S. Census)

  7. Cities in the World (Source U.N. Population)

  8. Market Area: Area over which a firm can underprice its competitors. Net Sale Price: Sum of the price charged by the store, plus the travel costs incurred by the consumers. Basic Definitions $ 30 20 10 0 10 20 30 Distance to Center

  9. Equilibrium with Monopolistic Competition • Story of the Model: • Start with one firm: Monopoly • As the firm makes extra economic profits other firms will enter the market: Monopolistic Competition

  10. Only One Firm: Monopoly More Than One Firm: Monopolistic Competition $ $ MC ATCPROD MC ATCPROD Pm Pe MR D MR D Qm Q Q Qe

  11. Efficiency Tradeoffs • As firms enter into the market, the firm’s demand curve shifts to the right, moving the quantity produced at a point different than min ATCPROD • As firms enter into the market, the travel cost for consumers decreases ATC $ Average Travel Cost ATCPROD Q Qe Qt Qm Qpc

  12. Equilibrium Market Areas $ 30 20 10 0 10 20 30 Distance from Center of Region Firm’s 2 Territory Firm’s 3 Territory Firm’s 1 Territory

  13. An Algebraic Model of Market Areas • What are the factors that determine the area of a market oriented firm M? • d Per Capita Demand • e Population Density (per Square Mile) • q Output of the Typical Music Store

  14. Determinants of Market Areas • Changes in Demand and Population Densities • Changes in Scale Economies • Market Area and Traveling Costs • Market Area and Income (income elasticity of land vs. income elasticity of demand for output)

  15. Urban Hierarchies & the Central Place Theorem • Shows how the location patterns of different industries are merged to form a regional system of cities • The Central Place Theorem answers two main questions: • How many cities will develop • Why some cities are larger than others

  16. Central Place Theorem (A Model) • Population Density • Distributed Uniformly at Beginning • Region’s Population X • No Shopping Externalities • Ubiquitous Inputs • Uniform Demand • Three industries: • Industry I: Requires a population of X • Industry II: Requires a population of X/4 • Industry III: Requires a population of X/16

  17. CPT Model (Cont) • Industry I will locate in the center of the region, just as the Median Location Theorem predicts. Workers will want to live close to the store and City A will be born. • There is enough people for 4 stores of Industry II, two of these stores will locate in City A and the other two stores will split the region in two creating two cities City B and City C. • There is enough people for 16 stores of Industry III, because there are already 3 cities, some stores will go to these cities: • City A will get 4 stores of Industry III • City B and City C will get 2 stores each of Industry III • The other 8 stores will split the region into equal parts, creating 8 smaller City D-City L .

  18. 1 High Order City: 1 Store Industry A 2 stores Industry B 4 stores Industry C Population 4*(X/16) 2 Medium Order City 1 store Industry B 2 stores Industry C Population 2*(X/16) 8 Low Order City 1 store Industry C Population (X/16) CPT Conclusions City D City E City B City F City G City A City H City I City C City K City L

  19. Relaxing the Assumptions Output Goods are not Perfect Substitutes: • Suppose that output in industry 2 are not perfect substitutes • then stores will cluster to allow consumers to take advantage of shopping externalities • Instead of two Type B cities, all firms in industry will be in City A • Reduces the number of cities, but not the hierarchical order

  20. Relaxing the Assumptions Output Goods are Complements: • Suppose that output in industry I and II are complements • then stores will pair up to exploit this complementarity • Instead of two Type B cities and eight Type C cities, type III stores will cluster around all four type II stores • Reduces the number of cities to three, but not the hierarchical order

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