ECO333H1 Lecture Notes - Lecture 7: Closed City, Normal Good, Telecommuting
Document Summary
Mr = mc p(x) * h"(cid:894)s(cid:895) = i. If p(x) increases, then h(s) must also increase in order to make them equal. Closed: utility varies, population is fixed x ra r(x) x a 1 million people move to toronto. End result: p(x) increases, q(x) decreases, r(x) increases, s increases, d increases, x-bar increases. Therefore, utility goes down due to rising costs of living. Minneapolis vs. las vegas (closed city framework) ra,m > ra,l (comparing agricultural land rent) xm. If utility is constant, p(x) must be the same in both cities, if the only difference between the two cities is land prices. pm(x) = pl(x) *assuming constant cost of capital* rm(x) = rl(x) What happens if travel costs change: higher gas tax. Because downtown looks more attractive now, prices must change to compensate those in the suburbs more than before r"(x) p(x) x r(x) x p"(x) s s"(x) Consumption of normal goods goes down due to the income effect.
