Canada (Ontario) Urban Economics Assignment 1 Coursework

The Note 1-7 is the course materials. It's better to take a look before you answer the questions.
For the assignment, the graph is not mandatory.

Assignment #1

ECON 3500 Urban Economics

            Do each of the following questions.  Marks will be awarded based on the clarity and content of the explanation of your answer.  Some parts of a question may be weighted more than other parts.

            If you want to create a graph as part of your explanation then there are two solutions. You may find it easier to draw it by hand, take a photograph and insert the photo into the Word file.

            Second, copy and paste this image into your answer. In it, most of the work is already done, including shifting lines with markings (such as dotted lines) to show differences.  This generic figure does NOT include the information which is most important: the labels on the axes, the lines, why they shift in one direction or the other and the meaning of any intersections. You need to add such information as part of the “story” which you tell as part of your answer. In addition, this graph emphasizes straight lines; if the correct answer depends on the curvature of the lines then you should make sure that you discuss why the line is curved and why that makes a difference to the answer.

Basic Principles: Margins, Opportunity Cost, Equilibrium, Gains from Trade, Comparative Statics 

            plus Self-Reinforcing Effects

(Note: These phrases are not sufficient for an answer but they may give you an idea of how to proceed.) 

1/         True, false or uncertain?  Justify your response to each of the following statements.

10                    a) Tim Hortons carefully chooses where to locate its stores.  Some locations, such as at the intersection of two streets, have a natural advantage because of a higher number of customers who walk by or drive by.  Locations with such advantages produce higher profits in equilibrium.

20                    b) Covid-19 has reduced the fraction of people who commute and, with more companies shifting their employees to work from home more often, this reduction can be expected to persist even if there is no change in the number of jobs in the city. Fewer commuters on the road reduces the cost of commuting for the people who do commute. Suppose that the shift in the cost of commuting is proportional to percentage reduction in the fraction: e.g. if there are 25 percent fewer commuters then the cost of commuting drops by 25 percent. The change in commuting would have no effect on the optimal size of a city, and it would decrease the equilibrium size of a big city and increase the size of some small cities. 

16        2/         The government of Ontario has supported the development and expansion of farmer’s markets https://www.farmersmarketsontario.com/about-farmers-markets-ontario/ How would that support change the price of farm land?

            Background: Farmers always had a choice of how to sell their produce: either sell to a wholesaler who sells to a grocery store who sells to the final consumer or to sell direct to consumers. If sold to a wholesaler, the wholesaler pays for the shipping expenses. If sold direct to the customer then the customer pays for the cost of travelling to a central location, if it existed. (If you want, you can think of a farmer’s market as a kind of shopping mall for sellers of fruits and vegetables.) 

40        3/         a) Canada Post delivers packages for big and small companies. That fact they deliver all over a city every day, which simplifies the job: relative to a delivery company which works for one company, Canada Post benefits from economies of scope. Compared to the situation where consumers have to travel to the seller, show how using Canada Post would affect the market area of a seller who specializes in a good which is demanded by 0.1 percent of the population.  

            b) Given the following information, does the market area for a store with no competitors nearby change between i) and ii)?

            i) All consumers are willing to pay $12, while the store charges $6 and the (round-trip) transportation cost per km. is $0.5.

            ii) After a change in speed limits near the store and far away, the (round-trip) transportation cost per km. is $1 for the first 2 km. and 0.1 for each additional km thereafter.

            c) Consider a city which is locate on a long (10 km.) thin island. It has a population density of 100 people per km. which is the same everywhere in the city. Each person drinks exactly 1 cup of coffee per day and are willing to pay $5 per cup. The average cost of selling coffee is simple: the minimum average cost is $2 per cup if it sells 200 cups per day and the average cost rises by 10 cents for every 10 cups more or less than this amount (i.e. one each side of the minimum, the AC curve is a straight line where, for example, the average cost of selling a cup of coffee would equal $3 if it sold 100 cups per day and the average cost would be $4 if it sold 400 cups per day.

            i) How many sellers would there be in this city, in equilibrium?

            ii) Where the sellers would locate in equilibrium? For a marginal consumer in that equilibrium, how much benefit do they enjoy, in dollar terms relative to the situation of having only one store in town and the price did not change from that in a)?  

14        4/         Consider the case of Communitech in Kitchener Waterloo, and other “incubators”. They like to talk about providing an “eco-system” to encourage new companies. According to them, they

• “providing coaching and advisory services for new entrepreneurs; 
• “offering training and skills development programs for people working in tech-driven companies—in everything from sales, marketing, user experience design and data analytics; 
• “helping companies make meaningful connections to talent, investors, customers, and partners through our networks around the world”

https://www.communitech.ca/about-us/our-story.html (see also https://news.communitech.ca/communitech-20-two-decades-in-this-is-where-were-headed/ for more history)  

            a) How do “Peer Groups” act as a mechanism to encourage agglomeration effects? Focus your discussion on one of the following areas of emphasis:

            Health https://www.meetup.com/Hacking-Health-Waterloo/

or         Big Data https://www.meetup.com/KW-Big-Data-Peer2Peer/members/

            b) Is this an example of “localization” or “urbanization”?