Urban Economics- Introduction, , why are city important to economists, space-economy interaction, residential location matters

1. URBAN ECONOMICS
Dr. Mousumi Ghosh (Dastidar)

2. Introduction
Urban Economics- Urban Economics is the study of the
location choices of firms and households and the
consequences of these choices
It includes a wide variety of topics: how and why cities
are formed, how land is used within cities, the location of
one city relative to another, and the relative size of cities.

3. Introduction
Urban Area
An area with a higher population density in comparison
to that in a rural area
Some Necessary Conditions for the existence of the
towns/cities:
•Agricultural surplus
•Economies of scale in production
•Uneven distribution of resources
•The needs of government

4. The Development of the City
Cities are a key product of the industrial revolution and
the development of the capitalist economies.
The industrial revolution brought innovations in
manufacturing and transportation sectors. Manual
production was replaced by mechanised one.

5. The Development of the City
Trade between the city region is the basis of the global
economy
People work in cities in spaces that are unequal, and
have rewards that are unequal
Cities dominate the planet’s economy and are of critical
importance in processes of social and economic
development

6. Why are cities interesting to Economists
Cities are distinguished by the kind of economic activity
that they host.
Most of them are home to industry and services.
In the high-income countries, services are the
overwhelming activity.
Retail and wholesale trade, IT services, education,
finance, law, medicine, entertainment, public
administration and other service activities, dominate the
city economies.
.

7. Why are cities interesting to Economists
Cities are trading centers. They facilitate trade,
exchange, and contracting, all greatly supported by
proximity of buyers and sellers.
Major cities are generally coastal, to take advantage of
the lower costs of sea-based shipping of goods. (This
recalls the observation of Adam Smith in 1776 that
development normally starts at the coast and moves
gradually to the interior).
Great cities are often at the estuaries of great rivers.

8. Why are cities interesting to Economists
Cities are often places of glaring inequality.
Cities enjoy enormous advantages of economies of
scope and scale, Their productivity is enhanced by the
large markets that they offer, making possible an
enormous range of activities ,depth of specialization and
enormous scale of production.
Cities face major challenges of “urban externalities,”
resulting from the high density of population and
economic activities.

9. The Significance of Space in urban economics
Urban economics examines the question of where of
economic activity. Each activity in space means that
during the time it is occupied in one way, it cannot
be occupied by any other.
Households choose where to live
Households choose where to work
Firms choose where to locate its factory/office/stores
.

10. The Significance of Space in urban economics
Space is a scarce commodity . Its use has economic
implications.
The ways in which people use space sometimes result in
certain built spaces being permanently devoted to
particular uses, whereas certain other may experience a
variety of uses at different times.

11. The Significance of Space in urban economics
City is an economic and social entity
Demand for residential space determines the demand for
space in a city by a large extent.
Research in the field of Urban economics began (late
1950s) as the theoretical analysis of the pattern of
residential location in a large city.

12. Theories of Residential Location
The Filter Down Theory/Urban Ecology
Earliest version- E. W. Burgess(1920s)- Residential
pattern of Chicago
The higher the income of any household, the further it
lived from the centre of the city.

13. Theories of Residential Location
Emphasis is on the supply side
Highest-income households live in the newest housing
furthest from the centre and the poorest households live
in the oldest housing near the centre.
The pattern of residential location is justified in terms of
the age and quality of housing.

14. Theories of Residential Location
Burgess - Concentric Zone Theory
The process of urban growth occurs through a series of
concentric circles expanding radially from the central
business district .
There are five broad zones
The theory is also known as Historical theory of
residential location (Alonso).
Economic forces are supposed to cause the pattern.
Pattern of location depends solely on the pattern of
housing replacement.

15. Theories of Residential Location
Concentric Zone Theory

16. Theories of Residential Location
The tendencies of any town/city to expand radially from
its CBD – a series of concentric zones.
The growth of the population of the city results in an
expansion of its area- tendency for each inner zone to
extend its area by the invasion of the next outer zone.
Thus a particular site served a succession of users.

17. Theories of Residential Location
The Wedge/ Radial sector theory Hoyt (1930)
It is a modification of the Historical Theory of Residential
Location.
Focuses primarily on the location pattern of the
households -- includes the socio-economic factors in
residential location choice.
It suggests that as the city grows, diverse socio-
economic groups tend to segregate.

18. Theories of Residential Location
Over time, high quality housing tends to expand
outwards from the centre along the fastest travel route,
whereas low income households are located on the
opposite side of the CBD near the industrial land use.
Instead of concentric zone, there are sectors.
Household sectors radiate outwards from the city centre
separating the manufacturing into other sectors.

19. Theories of Residential Location

20. Theories of Residential Location
The household land use pattern in the city depends not
only on transport cost but also on similar income, taste
pattern and culture.
People can pay a higher rent for high income housing in
sector 5 to live with residents of similar outlook and in a
good environment.

21. Theories of Residential Location
The filter down theory could be correct even if a pattern
of concentric zones did not exist.
The theory is primarily a theory of housing occupancy.
It is a positive theory.
It describes and explains but does not show whether the
process ought to happen.