Cities d in decline e none of the

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Unformatted text preview: tion costs. Assume that these new processes had no effect on the cost of home production or on transport costs. Clearly illustrate the effect of these technological changes on market area of a Toronto factory in the diagram above. b) 4 points In the 1880s the Canadian Pacific Railway finally connected Toronto to western markets as far out as British Columbia. Use the market area model to illustrate how this would have affected a factory in Toronto that built logging equipment. Assume the building of the railroad only affects transport costs. Use the diagram above to clearly illustrate the resulting change in market area. The railroad lowered transport costs. The dotted lines represent total cost (produced and delivered) after the transport innovation. The increase in market area is denoted by the short horizontal arrows. If I had more room, I would have exaggerated this, as the railroad was a major breakthrough and led to very big increases in market area of firms, especially those producing goods in demand out west. 6 One person noted that there should be a big drop in transport costs to the west (left) and less of a drop to the east, where riverways already provided cheap transport and the railroad provided much less of an advantage. This was a more nuanced answer, but a good one. Note that if I ask you to clearly illustrate an increase in market area, you want to try to be clear in your picture. In some cases I took off points for people with vague drawings, even though the graph was manipulated correctly. In your careers, you will often be asked to explain things to people—sometimes complicated things. Those who do this well will tend to be rewarded. It’s good practice to start now. Note that you could get full credit without writing any explanation for both parts to this question. 7 2) 9 points total Consider a region with 2 cities. Everyone lives in City A or in City B and people can migrate between the two cities. Utility per worker curves are given for each city below. In the diagram below we see the region in initial equilibrium. Consider a change in policy in City A that reduces social welfare for residents of City A instantaneously (at all levels of population). Assume that the utility per worker curve of City A remains above that of City B after the policy change. Illustrate the new equilibrium after the wasteful policy is implemented in City A. The policy change causes the utility per worker curve for City A to fall. This instantaneously decreases utility per...
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