Economics 4325 Review Questions for Mills Chapters 5 & 6

1. How do you express the value of land in terms of its annual rent?

2. Would you apply the same formula to determine the present value of capital improvements on land? Why or why not?

3. Suppose productivity varied considerably among alternative parcels of farm land. Which parcels would command the highest rent?

4. What does it mean when we say that rent is a residual after payment for all other nonland resources at a particular land site? Illustrate with given price and cost curves for other resources used, excluding rent.

5. Since land is in fixed supply, what determines the value of land?

6. What was Henry George’s single tax?

7. Can you justify Henry George’s single tax on a basis of equity (fairness)? Why or why not?

8. How would such a tax affect the value of land? How about the incentive for capital improvements on land?

9. Suppose there is a single competitive industry with uniform resources and transport costs linearly related to distance traveled from a point of export in the center of the area.

a. What determines the total revenue of the firm at each location. Begin with the CBD and move outward.

b. If each firm faces the same TC curve excluding rent, at what point would rent equal zero?

c. Translate your interpretation of TR and TC, excluding rent, into a bid-rent curve (land-rent function) that firms would be competitive firms in the area would be willing to pay at various distances from the CBD.

10. Suppose there are two competitive industries bidding for the same land. Why would one industry be likely to have a different bid-rent curve than the other?

11. Give two factors that are likely to affect the slope of the bid-rent curve for a particular industry?

12. If the two industries competed with each other how would the land be allocated between the two uses? Illustrate with a diagram.

13. When households are considered why can a bid-rent curve be considered a utility function for land versus other goods and services?

14. If more than one utility function can exist among households, what determines the signal bid-rent curve that exist in equilibrium in the area?

15. How would net in-migration affect the bid rent curve of existing households?

16. In a competitive model between business and household use, why are households more likely to locate on the periphery of the city?

17. Why is land used more intensely by all users when its rent is higher?

18. Give two ways firms benefit from a location closer to the CBD.

19. Give two ways firms benefit from a location further away from the CBD.

20. Discuss the effect of each of the following on the intercept and slope of the bid-rent function (rent gradient) of a open city.

a. Population growth

b. Lower transportation costs

c. An increase in income per household

21. Why does an area’s rent gradient really reflect its level of economic development as opposed to another area with a lower rent gradient.