Question 22 (30 marks) (1) Consider the open city of Blackrock that is situated

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Question 22 (30 marks) (1) Consider the open city of Blackrock that is situated on a linear corridor of land of width 2 kilometers between two mountains. It has a CBD that does not take up any land. People work in the CBD and earn on average $5,000 per month. Assume that all workers work for a fixed 100 hours (5 hour per day x 20 days) per month. All land lots are fixed at 200 m2. Each worker occupies one lot. Suppose everyone has a utility function of U (land consumption x food consumption) We know people can enjoy a utility of 1,000 elsewhere in the country. The unit price of food is $0.5 everywhere. Agricultural land rent is assumed to be $5 per m everywhere. 1/2 All workers drive to work because no public transportation is provided. The fuel cost and other operating costs of car driving are ignored, so the only commuting cost is the time spent on the road for a round-trip from home to the workplace There is a long and narrow highway at the middle of the corridor connecting the CBD and other places. Assume that driving from home to the highway takes no time because most homes are pretty close to the highway. Once people are on the highway, they can drive at a constant speed of 40 km/hour. The following graph shows the geography of this city: Mountain A 2 km Blackrock CBD Redstone Mountain B (a) Carefully derive residential bid-rents of workers, depict them in a graph. What is the equilibrium rent? (6 marks) Derive the city boundary and population size. Label the boundary carefully in your graph. (b) (6 marks) (2) Suppose the city government constructs an elevated light rail just above the highway, financed from a grant from outside. The light rail runs from the CBD to a small town called Redstone, 25 km east of the CBD. The light rail system only has two stations: one in the CBD and the other in Redstone. The rail service is free and much faster. It takes just 15 minutes to travel from the CBD to Redstone, including both waiting time and the time in the train. Therefore, a round-trip will take 30 minutes on average (a) How will this new rail system affect the city? Derive bid rents, equilibrium rent, city boundary, and the population size? (8 marks) (b) Essay question Imagine that the system is still in the proposal stage. Given the results you derived in part (c), discuss in general terms how the light rail system affects the local economy. You can potentially play the role of an activist for or against the proposal. You may also want to relax some implicit or explicit assumptions made in this example, i.e, you can go beyond this (10 marks) particular example. END OF PAPER

Explanation / Answer

We know that the monocentric model is described as William Alonso, Richard Muth, Edwin mills in 1960. The monocentric model is described as spatial relationship between the variables. Under this model a central Business distric and residential regions. The model is focused on the problem of transportation among the regions.

A)

the rent control is described as below:

B) The utilities of both cities are decreased. That means the distance between the two cities cost are not covered by this policy. So the rent control policy the CBD pays higher land price to the bider. Also the distance from both CBD are increased.

C) It is negative pecuniary externalities

The Externality of the monocentric model is pollution. The pollution is increased because of the absence of the tax policy of the government. The pecuniary is transport cost. The transport cost are increased when rent controls are imposed. This creates externality in the economy.

D)

The spatial equilibrium is the interdependence of various firms. In the above situation where the having of the multiple municipalities in one city is reduced. So we take in to account sigle municipality in one city so this will reduced the externality. In the above policy is exerted to west only.

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