Question

1.Which of the following changes would most likely occur in the Gotham housing market if the...

1.Which of the following changes would most likely occur in the Gotham housing market if the city were to add a network of bike paths?
a.The supply curve would fall.
b.The supply curve would rise.
c.The demand curve would fall.
d.The demand curve would rise.

2.Which of the following changes would most likely occur in the Gotham housing market if the city were to require developers to pay a tax on each new building?
a.The supply curve would fall.
b.The supply curve would rise.
c.The demand curve would fall.
d.The demand curve would rise.

3.Suppose that, as with the examples in the lecture, Boston has a low elasticity of housing supply (due to limited land area) and Houston has a high elasticity of housing supply (due to abundant land). Which of the following best describes what would happen if demand were to rise in both cities?
a.Price and quantity would rise sharply in Boston, and change little in Houston.
b.Price would rise sharply and quantity would respond little in Boston; quantity would rise sharply and price would respond little in Houston.
c.Price and quantity would quickly reach their new equilibrium values in Houston but adjust slowly in Boston.
d.Developers would build smaller housing units in Boston and larger housing units in Houston.

4.Which of the following is NOT an example of an agglomeration effect?
a.Firms might become more productive because transportation costs for both goods and employees are lower in dense cities.
b.Larger cities provide access to more jobs for workers and more labor for employers, enabling better job matches.
c.More talented employees might want to move to larger cities because they provide better-developed cultural amenities.
d.Larger cities facilitate social networks that spread ideas, sometimes by informal methods (“knowledge in the air”).

5.How do agglomeration effects change the slope of the demand curve?
a.Agglomeration effects shift the demand curve, but it always still slopes downward.
b.Depending on the magnitude of agglomeration effects, they could make demand shallower downward, or actually cause it to slope upward.
c.Agglomeration effects reverse the demand curve so that it always now slopes upward.
d.Agglomeration effects cause demand to become curved rather than linear.

6.Which of the following is an example of a congestion externality from driving on I-90 in Boston at rush hour?
a/The presence of an additional car on the road slows travel times for other drivers.
b.Driving generates greenhouse gases, which cause uncompensated harm to the environment.
c.Tolls (which do not vary by time of day) are paid electronically to the highway authority for the maintenance of the road.
d.Traffic on the highway creates noise that is disruptive to nearby residents

7.What is meant by an “unstable equilibrium” in this lecture?
a.A city prone to riots due to unstable social conditions.
b.A population-price equilibrium that would be likely to “tip” to another as a result of a small change.
c.A condition where housing construction is occurring very quickly due to the slope of the supply curve.
d.A condition where prices are changing rapidly due to the slope of the demand curve

8.Which of the following is the best example of a Pigouvian tax?
a.Progressive income taxes, i.e. those charged at higher rates for those with higher incomes.
b.A carbon tax, set equal to the social cost of carbon emissions.
c.Corporate income taxes assessed on large companies that use many municipal services.
d.Taxes on specific assets such as real estate and automobiles.

9.In this lecture, we extended the supply-demand framework to take into account that the housing stock is durable: that is, housing, unlike some other goods, doesn’t need to be produced continuously. For which of the following types of cities does that modification make the most difference in the predictions of the model?
a.Growing cities like Boston, because the existing buildings may be too small for current demand.
b.Shrinking cities like Detroit, because there may be more existing housing stock than is currently demanded.
c.Developing-world cities, because informal housing is likely to have a shorter usable life.
d.Cities affected by natural disasters, because the existing level of the housing stock is suddenly changed.

10.Suppose that we observe two neighboring cities, Ashtown and Beechville, in which the physical houses, their quality, and wages are identical, but housing prices are higher in Ashtown than in Beechville. According to the spatial equilibrium theory, which is the most likely explanation?
a.Ashtown offers amenities superior to those of Beechville.
b.Ashtown offers amenities inferior to those of Beechville.
c.The market is out of equilibrium.
d.Prices are regulated in Beechville.

11.Why is it the case that in an open economy — one open to trade in goods and services with the rest of the world — advancements in agricultural production no longer raise the price of urban goods?
a.More open economies are more culturally diverse and enjoy consuming a wider variety of products, increasing competition.
b.Economies open to trade are forced to develop more sophisticated legal systems, which lower overhead costs in urban transactions.
c.Economies open to trade are likely also to be open to immigration, which drives wages down and offsets the price effect.
d.In an open economy, it is no longer necessary to sacrifice rural production for urban production (or vice versa) because additional demand can be met by imports.

12.Why, in the Alonso-Muth-Mills model, does the slope of the demand curve become shallower as the distance from the city center increases?
a.Agglomeration economies matter more at very high than at medium levels of density.
b.Transportation costs have a “kink” because consumers switch from walking to driving.
c.Civic amenities are improved in areas far from the city due to more efficient local governments.
d.Housing quality is superior in rural areas where fewer legal constraints apply.

13.What would happen if the marginal cost of added density falls everywhere?
a.Density would increase at all distances from the city.
b.Density would increase only in the city center, and decrease elsewhere.
c.Housing units would become larger to take advantage of added available space.
d.The predicted effect is unclear.

14.In the model presented here, what causes the neighborhood “tipping” phenomenon where demographic composition changes quickly?
a.Changes in demographic composition bring changes in income levels, causing housing prices to change quickly.
b.Small changes in demographics are magnified by the structure of preferences, where each household somewhat prefers to have other similar households nearby.
c.Changes in demographics bring about differences in neighborhood amenities, such as crime levels or social capital, which migration flows then respond to.
d.As the existing neighborhood composition changes, the share of political power shifts to another group, attracting different new residents.

15.What key assumption underlies the model of imperial city growth and investment outlined in the lecture?
a.Cities face more serious crime and social problems.
b.Central cities need major investments in administrative buildings and facilities that serve the entire country.
c.Poor infrastructure in developing countries makes it difficult for rural areas to communicate their needs to the capital.
d.Revolts and political unrest are easier to coordinate in urban areas due to physical proximity.

16.According to the model discussed, what makes the cost-benefit analysis of riots different from baseline crime patterns?
a.Riots only occur in remote areas, where policing is less intense and the probability of punishment is lower.
b.Riots are confined to certain income or demographic groups, for which the opportunity cost of crime may be different.
c.During the melee of a riot, the probability of arrest is much lower, decreasing the expected cost of crime.
d.Riots focus on certain types of crime for which the benefits may be larger, or sentencing may be less severe, reducing the costs.

Homework Answers

Answer #1

Q.1 (a) and (d)

As the new bike pathways connect to the houses, it adds to the value of houses due to better transportation facilities. Demand would rise and the supply will become less.

Q.2 (b) and (c)

As the taxes are new expenses for the house owners, many would like to sell, and hence supply would increase. On the other hand buyers would quit the market when they forsee the higher future tax expenses.

Q.3 (b)

Boston has limited land, so supply cannot be increased, but price would rise very quickly due to the demand.

In Houston the land is available so new houses would get built very fast and thus increase in supply. Due to abundant supply price would remain unaffected.

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