Chapter 29 Urban Regional and Rural Economics Urban

Chapter 29 Urban, Regional and Rural Economics

Urban Economics Why are there cities? Cluster for protection Specialization Transportation

Determinants of city location Agglomeration economies-cost savings that pull to a city, A reduction in production cost the results when related firms locate near one another. internal scale economies-large labor pool, industrial parks and business districts transport economies-lowers transport costs specialization in services infrastructure-Basic facilities, services and installations needed for a functioning community or city (external production benefits) Transportation Communication Water and power utilities Public institutions Schools post offices prisons reduced transactions costs

Demand conditions (amenities of the city)-restaurants, sports, culture, medical care (external consumption benefits) available only in large communities Deglomerative economies-cost increases associated with urban areas higher costs of living, crime, pollution

Urban Problem Urban decline or urban sprawl - caused by larger cities and flight to the suburbs Pre-auto-people lived near their jobs, cities developed Postwar-higher incomes and autos Caused people to move to the suburbs (more pleasant areas) -creating a better infrasructure Nice homes Good schools Parks Safe clean streets Property taxes increased in the suburbs and fell in the inner cities Slums developed Definitions Central city – core city including the central business district (CBD) and suburbs Edge city – suburb city independent of the central city Metropolitan Statistical Area must have at least one urbanized area of 50, 000 or more inhabitants. It consists of no less than one county. There are 370 Metro Areas Micropolitan Statistical Area must have at least one urban cluster of at least 10, 000 but less than 50, 000 population. It typically consists of one county. There are 565 Micro Areas

Education Quality of city schools and tax revenues declined Voucher-every pupil gets a voucher promotes competition for students city pays tuition parents can choose schools

Housing Neighborhood effect-incentive to undermaintain your home value=40% structure + 60% neighborhood home value depends on the actions of others Filtering-Housing is passed down the distribution of income chain as new housing is created abandoned housing run down buildings Social Capital decays Property taxes decline City budgets decline

Housing Solutions Policies Regulation-building codes, zoning, rent control Uniform Housing Standards Promote private ownership-easy finance Public housing-low rents Urban renewal-decrease available housing and raise rents Rent supplements available housing and raise rents

Transportation Too many autos and not enough mass transit. finite amount of land. time delays, pollution, congestion and noise Reason: MCauto < MC mass transit car is private with tailored conditions and personal space Make mass transit less costly tolls tax on gas toll on empty seats toll on cars not buses

Crime and Drugs Why do people commit crimes? Expected marginal benefit > Expected marginal costs Solutions reduce the supply: raises price, increases crime, increases police, court and prison (crime university) costs, increases taxes reduce the demand: education legalize: safer, out of the legal system, tax revenues go up, crime goes down

Health Care Economics Health Care Industry 9 million employed 700, 000 Doctors 255 people per doctors 5800 hospitals 984, 00 beds

Costs and access Health care costs are rising rapidly Faster than the inflation rate 41 million don’t have insurance and others have limited or no access Low income Elderly Blind Disabled Children Unemployed Chronically ill

Rising Health care costs Health care spending 16. 4 in 2008 up from 5. 1 in 1960 as a percentage of GDP Hospitals 33% Doctors 22% Dental and Vision 22% Prescription drugs 10% Sources of Funds Insurance 35% Medicare 19% Medicaid 15% Copayments and deductibles 17%

Quality of Health Care: the best in the world Implications of Rising costs Limited access Rising taxes Health care characteristics People believe it is a right Asymmetric Information: Imbalance of information between patient and provider Spillover effects Externalities: Catching a cold from another person • Flu shots Most payment is by insurance 15% have no insurance Regulated by the government Health services

Basic problem Increasing demand Aging population Drug abuse Rising incomes Unhealthy life styles Overconsumption Decreasing supply AMA is a monopoly License Medical accreditation Education Malpractice lawsuits Slow productivity Regulation drives up medicine prices Drugs (FDA)

Reforms Universal Access Play or pay; employer provided insurance Tax credits or vouchers National Health Insurance Health Maintenance Organization: Managed care plan that integrates financing and delivery of health services to enrollee Pay the doctor when you are well and not when you are sick

Rural (Agricultural) Economics Farm Problem Farmers have low income but high wealth in debt Reasons Perfect competition Increase productivity-fewer farms but more output Food is income inelastic Food is price inelastic Resource immobility-farmers are farmers Rapid technological change-increase in productivity

Government Farm Policies Price supports: Guaranteed prices Crop Restrictions-society get less output at higher prices Soil banks: acreage restrictions (curtailment)-marketing quotas Land retirement-worst land goes unused Resources go to good land Target prices: govt. gives subsidies if targets aren't met Payment in Kind-paid in crops not money

Solutions Encourage farmers to quit and relocate Corporate farms-corporation owns farm, assumes debt and hires the farmer Make the structure an Oligopoly

Nine Nations of North America

Megapolitan Areas