1.  How does improved transportation affect the bid-rent curve?

2.  Would taxing land more heavily yield a Pareto improvement? Please elaborate.

3.  Please discuss two reasons why land values are higher in the CBD than in places further away.

4.  Please provide an example of when the “closed-city” case approximates reality. Explain why this is so.

Outline of Chapter 6 Study Guide


This chapter is about land prices. What drives the price of land? We will learn about how  location theory helps us to understand land prices. I have also included a link to a nice little video on bid-rent curves that explains why land values differ.

Bid-Rent videoLinks to an external site.

Chapter 6 Outline

Location Theory

· Capitalization of land prices (Present value of future rents)

· Bubbles

Simple Models of Location Theory

· Closed-city case (No one can migrate)

· Open-city case (People can migrate)

· Displacement costs and rents

· Bid-rent curves

· Monocentric city

· Density gradients

Transportation and Land Values

· Relationship between transportation and displacement costs

· Benefits of better transportation (equation p. 135)

Taxing Land

· Land tax versus taxing improvements

· The case for a land tax

· Problems with a land tax




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