ECON 3500 Lecture 6: ECON3500 Sept 28
5 Dec 2017
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If everyone did move; it would represent a shift in market conditions: house prices in ottawa would rise, house prices in guelph would fall people moving out of guelph. On one hand; people like low prices, but high prices are a sign that the city is desirable: depends if you"re taking an individual perspective or market perspective. In a big city; agglomeration implies higher wages & income. Depends on the size of the city. For an individual; utility = labour income + rental income (if landlord) commuting cost rent paid. In a big city, labour income is higher. In a big city, commuting cost is also higher. Although it is optimum; it is probably not what individuals will choose an equilibrium. City a got larger; and became a more desirable city to live in: city b got smaller; people moved out, eventually, one city reaches the optimal, this small change is not self-adjusting; it is only self-reinforcing.
