Rectangular Land Market Notes(1)(1)

Rectangular Land Market Notes(1)(1) - Introductory Notes on...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Introductory Notes on Rectangular Land Market Model May, 2010 These notes elaborate on a land-market model presented in O’Sullivan’s textbook “Urban Economics”. Building on the textbook’s analysis, our focus will be on these key questions: What is the impact on land rents if an endogenous output price replaces the textbook’s exogenous output price? 1 What is the impact on land rents and output price if the land supply is expanded or contracted? The rectangular model is introduced in the section “Bid-Rent Curves for the Manufacturing Sector” (pages 122-124, 7 th edition, or 102-104, 6 th edition). In that section’s Figure 6-1, we see an equilibrium bid rent curve (= bid rent function, abbreviated here as BRF). The BRF shows zero-economic-profit land rents for manufacturing firms as a function of distance (x) from a highway. The zero-economic-profit condition is met when firms earn only the profit required to stay in business. The textbook discussion continues in “A General Equilibrium Model of a Monocentric City” (pages 192-194, 7 th edition, or 157-160, 6 th edition). In Figure 7A-3 we again see an equilibrium BRF for manufacturing firms – now labelled R b. (the b being for businesses that manufacture a product). Figure 7A-3 includes residential land as well as manufacturing and agricultural land, but the discussion in these introductory notes will be limited to manufacturing and agriculture. Thus Figure 7A-3’s bid rent functions labelled R r (initial) , R r (streetcar) can be disregarded for now. They are considered, along with the upper-right (labour market) diagram, in separate notes entitled “The General Equilibrium Rectangular City Model”. 2 In the lower part of Figure 7A-3 we see the manufacturing land area (marked D), with its western boundary formed by a highway 3 1 An e ndogenous is determined in the model; an exogenous price is given from outside the model. 2 A land market could function without residential land if firms provide their employees with living accommodation at the job site. 3 As illustrated in Figure 7A-3, this western boundary is labelled the “centre”, but we will assume here it is a north-south highway as in Figure 6-1. The lower part of Figure 7A-3 shows a land- market map (the land market as viewed from above). As has been noted, the area marked D (demand for labour) is land occupied by manufacturing firms – firms that generate demand for labour. The area S (supply of labour) is land occupied by housing firms (firms housing residents
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Some manufacturing firms are located directly on the highway, and so have zero freight cost to access the highway. Others ship their product to the highway from interior locations, along local roads. Freight cost is defined here as the cost to reach the highway along local roads. These roads run east and west, so distance from the highway (x) is measured to the east. The model includes a variable called “non-land production cost” (NLPC), which is
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/25/2011 for the course ECO 333 taught by Professor D during the Fall '11 term at University of Toronto- Toronto.

Page1 / 13

Rectangular Land Market Notes(1)(1) - Introductory Notes on...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online