Econ 366 - Chapter 7

# Econ 366 - Chapter 7 - Chapter 7 A Critical Examination of...

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Chapter 7 A Critical Examination of the Monocentric Model

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Mono-centric – Single CBD Do density and rent gradients exist Magnitude of wage gradients and evidence Intra-urban wage variations Predictions of commuting behavior and actual patterns
Housing Price Gradient dp 2 (u)/p 2 (u) = - t . du p 2 (u)x 2 (u) Income \$20,000 (average income US 1990) 20% spent on housing: p 2 (u)x 2 (u) = .2 x 20000 = \$4000 t = \$0.75 (roundtrip/mile) x 220 workdays = \$165 dp 2 (u)/p 2 (u) = -165/4000 = -0.04 du Price of housing declines 4% per mile distance from CBD

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Land Price Gradient Capital does not vary by distance/urban centres Value of land 10% - 20% of value of housing 80% -90% of housing price does not vary by location Entire variation is due to variation in land price Example \$100000 (houseprice) –4% reduction = \$96000 Actually landprice \$20000 (20%) reduction \$16000 Percentage deduction is 4000/20000 = 20% If landprice is \$10000 (10%) percent decuction is 40%
Density Gradient

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## This note was uploaded on 09/26/2009 for the course ECON 366 taught by Professor Sengupta during the Fall '08 term at USC.

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Econ 366 - Chapter 7 - Chapter 7 A Critical Examination of...

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