Urban Econ Problem Set - Urban Economics Problem Set # 1...

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Urban Economics Problem Set # 1 Jonathan Timianko Due February 9 th , 2010 Urban Economics Karl Storchmann TR 2:00-3:15 1. The advent of the tunnel that is bored through the mountain that was separating the two regions was a principle factor in allowing trading cities to appear in the two regions. Before the tunnel was built, the two regions could not trade because residents of both regions considered climbing over the mountain to trade with one another too costly. However, the tunnel that was dug through the mountain makes self-sufficiency worthless, as it creates economies of scale in transportation for both of the regions. This tunnel allows residents of both regions to communicate for the very first time and share knowledge concerning the travel costs of trade. With this knowledge, each region would specialize according to its comparative advantage and trade with one another. However, the two trading cities would not appear unless the tunnel created economies of scale in production for both of the cities as well. 2.
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Urban Econ Problem Set - Urban Economics Problem Set # 1...

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