Presentation on theme: "Monocentric City. Assumptions Central export node All employment concentrated in core Steeper bid-rent for businesses than residences Single transportation."— Presentation transcript:
Assumptions Central export node All employment concentrated in core Steeper bid-rent for businesses than residences Single transportation mode
Equilibrium Land allocated to highest bidder No business or household has incentive to relocate
Land Use in Monocentric City Office firm will be highest bidder within 1 mile of center Residential use between 1 and 3 miles of center Farms beyond 3 miles
Implications Separation of different types of land uses House prices decline with distance from center House size increases with distance from center Commuting time increases with distance from center All employment concentrated in core.
Introduction of Street Car (Partial Equilibrium) Reduces commuting cost Changes slope of bid-rent. It becomes less steep Expands boundaries of city because residents will now outbid farmers for land at edge Residents also will outbid businesses for land near CBD border
Decrease in Commuting Cost
Effect of Decrease in Commuting Costs Before Office: 0-1 mile Residential: 1-3 Farm: 3 + Land rent at CBD boundary: 8,000 After Office: 0-0.826 Residential: 0.826-3.5 Farm: 3.5 + Land Rent at CBD boundary: $8941 (approx)
General Equilibrium Labor supply = Labor demand Expansion of residential district increases labor supply; Shrinkage of CBD decreases labor demand Excess supply of labor depresses wages In response, bid-rent of office firm will shift up; bid-rent of residential shift down. Workers have lower commute cost,but also lower wages. Landowners benefit.
Income Segregation (Alonso-Muth) Land consumption and commuting cost increase with income. If income elasticity of demand for land is large relative to income elasticity of commuting cost, then rich choose to live further from center than will poor. Wheatons findings suggests elasticities same.