Case

Assignment 2: Theory urban spatial structure

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Course
Urban Economics and Real Estate (E_EBE3_UERE)

Institution
Vrije Universiteit Amsterdam (VU)

In this assignment (10% of Final Grade) you learn to work with the theoretical urban model, as introduced in Chapters 2 and 3 of ‘Lectures on Urban Economics’. To this aim, you have to form groups of maximally three students. Exercise 2.1 (pp. 250-253) and Exercise 3.2 (p. 254) of the book ...

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Uploaded on October 15, 2024
Number of pages 8
Written in 2022/2023
Type Case
Professor(s) Jos van ommeren
Grade 9-10

urban economics
r

Institution
Vrije Universiteit Amsterdam (VU)
Education
Bedrijfskunde
Course
Urban Economics and Real Estate (E_EBE3_UERE)

JelleSierkstra

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Exercise 2.1

y=25
t=0.01 per block
x=? commuting distance in blocks.
q=1,500
Budget constraint: c + pq= y−tx

c +1500 p=25−0.01 x
Since housing consumption is fixed at 1,500, the only way that utilities can be equal for all urban
residents is for bread consumption c to be the same at all locations. The consumption bundle (the
bread, housing combination) will then be the same at all locations, yielding equal utilities.

For c to be constant across locations, the price per square foot of housing must vary with x in a way
that allows the consumer to afford a fixed amount of bread after paying his rent and his commuting
cost.

A.
¿
c +1,500 p=25−0.01 x
1,500 p=25−0.01 x −c ¿
¿
25−0.01 x−c
p=
1500
¿
c is fixed, so the numerator can only variate by changing x (number of blocks away from the CBD). If
x increases, the price per square foot would decrease (and the other way around), as the numerator
will be smaller than initially. Which implies an negative (inverse) correlation.

B.

Profit=15,000 p−90−r
r =land rent per square block
In equilibrium, land rent adjusts so that this profit is identically zero. So:

r =15,000 p−90
15,000∗25−0.01 x−c¿
r= −90
1500
( 375,000−150 x −15,000 c¿ )
r= −90
1,500
¿
r =250−0.1 x−10 c −90
¿
r =160−0.1 x−10 c

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