URBAN ECONOMICS

1.  Urban utility and city size

a.  Benefits of bigger cities

(1)  Agglomeration economies in production

• Increased labor productivity and wages => increased utility

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(2)  Agglomeration economies in consumption

• Increased variety of consumer goods => increase utility

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b.  Agglomeration diseconomies

• Leads to reduced utility

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(1)  Commuting and housing costs

• Unit cost of housing higher

• Increased commuting distance

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(2)  Disease

• Higher density and activity

• Improved water and sanitation have reduced gap

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(3)  Pollution

• Increased air and water pollution

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c.  Urban utility curve

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2.  Regional equilibrium

a.  Cities are not too small

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b.  Cities may be too large

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c.  Efficient cities

(1)  Stable

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(2)  Unstable

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3.  Differences in city size

a.  Localization and urbanization economies

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b.  Rank-size rule

• R = rank, c = constant, N = population, b = estimated from data

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R = c / N^b

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Ex. = Suppose b = 1.0

Population of U.S. cities

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4.  Urban economic growth

a.  Sources of economic growth

(1)  Capital deepening

• More capital per worker increases productivity, leads to higher income

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(2)  Increases in human capital

• Workers more productive, leads to higher income

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(3)  Technological progress

• Inputs, including labor, are more productive, leads to higher income

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(4)  Agglomeration economies

• Higher productivity and income

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b.  Innovation and regionwide utility

• Technological progress in one city can improve utility in all cities

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c.  Human capital and economic growth

• Impacts:

(1)   Higher wages

• Higher productivity leads to higher wages

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(2)  Spillover benefits

• Knowledge shared in formal and informal settings

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(3)  Technological progress

• Rate of technological innovation increases

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