Econ 312 Midterm Solutions Version 1-2

ECON 312 Midterm Solutions VERSION 1-2

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Economics 312 Midterm Solutions VERSION 1-2 Urban Land Economics

Midterm Exam #1

1) The effect of a (ceteris paribus) decrease in the cost of home production will be to

2) An increase in transport costs that has no effect on production costs (home or factory) will

3) A decrease in factory production costs (ceteris paribus) will

4) The building of the Canadian Pacific Railroad (which connected Toronto to the West) would have

5) According to Jared Diamond’s “Guns, Germs, and Steel” hypothesis, which of the following contributed to the dominant world position of European civilization by the mid-1800s?

6) Agglomeration externalities can arise due to

7) A piece of land that rents for $10,000 a year should sell for ________ if the interest rate is 5% and people expect the interest rate and rent to stay constant forever.

8) Assume that potential land users are equally capable (profitable) in their line of business, and that rental contracts are continuously renegotiated (i.e., there are no long-term contracts). The Leftover Principle says that

9) According to Ed Glaeser in Triumph of the City, cities can attract talent by

10) According to Ed Glaeser in Triumph of the City cities in decline (like Detroit) can benefit from

End Section 1.

Section 2: Short Answers

1) 15 points

Consider a region with a population that is divided across two cities. The questions below ask you about different possible configurations of this region. Utility per worker curves are given for each city in the diagrams below. Recall that utility per worker is increasing in income and decreasing in congestion and rental costs. Consider the following three cases:

Is this an equilibrium? If so, is it stable? Are the cities at their socially optimal size?

It is an equilibrium but is not stable. The cities are not at their optimal size.

Is this an...