Answer to Question #171517 in Economics of Enterprise for Timothy C OOMMEN

Question

 

A. Consider a monocentric urban economy in which every household has the same income and the same tastes. One worker from each household commutes to the CBD. Amenities and public goods are the same throughout the urbanized area. Assume that annual commuting cost per mile for each commuter is t=$500. Housing is a normal good.

 

a. Give a general expression for the slope of the housing-price curve. What are the units of the housing price curve?

 

b. The Smith family rents a1000 sq. foot apartment. What is the slope of the housing price curve where the Smith family lives? Explain.

 

c. The Jones family rents a 2000 sq. foot apartment. What is the slope of the housing price curve where the Jones family lives? Explain.

 

d. Which family lives closer to the city center? Explain. 

 

e. Which family has a higher utility level? Explain?

 

 

 

Answer 1

(a)$-t/h$

Where h is the housing consumption.

Units $

(b) $-t/h$

$=500/1000$

$=-0.5$

The slope is negative because the curve slopes downward.

(c)$-t/h$

$=-500/2000$

$=-0.25$

The slope is negative because the curve slopes downward.

(d) Smith family.

They have less utility compared to Jones family.

(e) Jones family.

Their utility of -0.25 is greater than that of smiths family.