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GY 457 last minute revision notes
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- London School Of Economics (LSE)
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Joven Liew Jia Wen201506858
GY 457 Revision Notes
2 parts – 9 questions, answer 3 questions, at least 1 from each part
3 hours
Theories of HH Location Choice and Urban Spatial structure
Historical Roots of Monocentric City Model
Ricardo (1817) – land with fertility
Von Thunen (1826) – Urban Land Use Theory, bid rent curves, transport cost explains
differences in land rent
Monocentric City Model
Alonso-Muth-Mills framework (Alonso, 1964) (Muth, 1969) (Mills, 1972)
Commuting cost differences within an urban area have to be balanced by differences in price of
living space
Land is an intermediate input for production of housing
Access to place of employment (CBD) is the only locational advantage
Assumptions of the model (HH, Firms, Government, Developers)
Strengths and Weaknesses of the model – Good job in predicting observed regularity in internal
structure of cities but cannot explain intercity differences
Bid rent curve concept
L, rA, y, t, x, U, p, r, q, S
Open vs Closed City Model
Closed City Model – Migration cannot occur, urban population L is exogenous, Housing Demand
and Supply determine Utility and urban boundary x
Open City Model – Costless migration, urban population L, urban boundary x, p, r, q, S are
endogenous, Utility U, rA, y and t are exogenous
Comparative statics
How urban form changed over time with changes in income (y), commuting cost (t), land rent
(r), population (L)
Increase in income (y) in Closed City model see Central and Periphery locations
Increase in income (y) in Open City model Bid rent curve shifts upwards. In all locations p, r,
S, D increase and q falls
Increase in commuting cost (t) in Closed City model Rotation in bid rent curve, urban
boundary x falls, central house prices p increase, periphery house prices p fall
Increase in commuting cost (t) in Open City model Downshift of bid rent curve, urban
boundary x falls, p, r, S, D fall in all locations, q increases in all locations
Apply model to real world policy intervention
Oil Price Shock – commuting cost t increase, rent increases, price increases. Commodity prices
increase, inflation increase, y decreases. Temporary or not.
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