Econ 414 - Urban Economics

# Econ 414 - Urban Economics
## Introduction
### Marcelino Guerra
### January 28, 2021

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# What is Urban Economics?

* Urban Economics intersects economics and geography studying the location choices of economic activity 
 - Identifies economic forces shaping the urban structure within/across cities
 - What are the costs and benefits of cities? 
 - What public policies promote efficiency in cities?

* Why location matter?
 - Agglomeration forces
 - Externalities, neighborhood effects

* What determines people's/firms' willingness to pay for places? 
 - Why do firms stay in places where they pay high salaries?

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# Regularities Across cities

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# Population Density in the US

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# Household Income in the US

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class: inverse, middle, center
# Regularities Within Cities

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# Population Density in Chicago-IL

# What are cities? What's good about it?

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# What are cities? What's good?

* A city is a relatively small area that contains a large number of people

- Three conditions must be satisfied for a city to form: Agricultural surplus, urban production, transportation system
  
 - The share of people living in cities in the US increased from 2% to 82% between 1700 and 2010. Technology advances caused this movement. Why?
 
 - **Cities increase our standard of living**

*  Thicker markets offer better matches between workers, firms, and consumers
 
 - Productivity benefits 
 
 - Transportation costs 
 
 - Knowledge spillovers
 
 - Consumer cities
 
 
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# Urbanization in the US

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# Urbanization across the World

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class: inverse, middle, center

# The cost of cities

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# COVID-19 Distribution across US 04/22/2020

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# COVID-19 Distribution across US 01/24/2021

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# The Economic approach to cities

- Focus on people rather than places

- Three key elements:
  - People respond to incentives 
  - There is no free lunch (no-arbitrage equilibrium) 
  - Good policies increase people's range of choices

- Relies on a spatial equilibrium for workers, employers, and developers
  - Individuals are indifferent across space: 
  
  Income + Amenities - Housing Costs - Transportation Costs **is constant over space**
  - Differences in wages must be offset by differences in productivity
  - Developers are indifferent about building or not new units

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# Axioms of Urban Economics

1. Prices adjust to achieve locational equilibrium
  - Prices will adjust, so no one has the incentive to move

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2. Self-reinforcing effects generate extreme outcomes
  - A change in something leads to additional changes in the same direction

3. Externalities cause inefficiencies
  - A crowded highway, air pollution, etc.

4. Production is subject to Economies of Scale
  - The average cost of production decreases as output increases

5. Competition generates zero economic profit
  - Zero economic profit means earning "normal" accounting profit