Why Do Cities Exist

1
Why Do Cities Exist?

• Chapter 2-4
• Q Why do you like or dislike the New York City
  and San Francisco?

Wen-Chi Liao www.econ.umn.edu/liao/
2
A Region without Cities

• Equal Productivity
• Constant return to scale in exchange
• Constant return to scale in production
• Homogeneous amenities

3
U.S. Cities (Metropolitan Areas)
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4
Early Trading Cities

• Comparative advantages in different things at
  different places
• Wheat and Cotton
• Advantage in Transportation
• The Mississippi River and the Great Lakes
• Scale Economy

5
Benefit of Cities Production

• Knowledge Spillover
• Urban density Population Education level
• Local public goods (Infrastructure)
• Reducing transportation cost
• Labor Pooling

6
Benefit of Cities Preference

• Exogenous amenities
• Consumption variety

7
Cost of Cities

• Higher Housing prices
• Longer commuting time
• Higher crime rate
• More pollution

8
Equilibrium

• Cities are productive
• Cities are costly
• Indifferent between where to live
• Consumer city and Production City

9
Homework 1 Three weeks from now

• Use the American Fact Finder. Find 1 or 2
  stylized facts about cities. Write a report.
  Appropriate length is 1 to 2 pages without
  figures and tables.
• Introduction
• Data
• Report the fact
• Interpret the fact

10
Practice

• Fact one Workers earn more in bigger cities
• Fact two Housing prices are higher in bigger
  cities

Instruction