Question 4
Consider the example of Households' bid rents curve from the Notes
Like in the notes assume the household first starts up at x=10 where the rent is $0.30 per square foot. The household choses an apartment with 1,000 square feet. However and in contrast to the notes, the preference (=utility curves) are now not convex. In fact, housing and non-housing goods are perfect complements. When this household moved closer to the city center, to x=5, what is his rent per square foot, how big will his apartment be and what is the total rent paid. Also, draw a sketch and show the equilibria at x=10 and at x=5.
Question 5:
Consider the streetcar case given in the Notes to Ch. 7. (B. A General Equilibrium Model of a Monocentric City). Assume the following Bid Rent Curves:
Offices: P=200-4x; Office Workers P=180-2x; Agricultural Land : P=140
(a) Where do the three groups locate?
(b) Now assume the city grants Office Workers a Transit Pass which will lower their marginal transportation cost by 0.5 $ per x. If this did not induce any change in the local labor supply, how does this alter the locations choices?
(c) Now, further developing (b), assume that the Transit Pass attracts more workers to the city. As a result, wages fall by $10. Calculate the new equilibrium locations.