ps1a - Urban Economics Problem Set #1 Suggested Answers (1)...

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Urban Economics Problem Set #1 Suggested Answers (1) Consider a country with two regions that are separated by a mountain range. Initially, there are no cities in the country. Suppose that a tunnel is bored through the mountain, decreasing travel costs between the two regions. Under what conditions will the tunnel cause the development of trading cities? Answer: If the differences in productivity are large relative to travel costs, there will be net gains from trade. If there are scale economies in transportation, trade will not be direct, but will be executed by middlefolks in cities. (2) Consider a region that has a single factory city, a city that developed as a result of scale economies in production. It is a walking region: people walk to work and to purchase consumer goods. Suppose pump sneakers are introduced (selling at the same price as traditional shoes), doubling walking speeds. Will pump sneakers cause the factory city to grow, shrink or disappear? Answer: The radius of the factory's market area increases (from three miles to seven miles), so total output and the factory's workforce increases. The increase in the workforce increases the city's population. (3) Region F has a single factory city (a city that developed as a result of scale economies
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This note was uploaded on 04/05/2012 for the course ECON UA.31 taught by Professor Storchmann during the Spring '11 term at NYU.

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ps1a - Urban Economics Problem Set #1 Suggested Answers (1)...

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