Monocentric Model Setup Flashcards
What is the monocentric city model?
It is a canonical framework used to understand urban land markets by focusing on a single central point—the Central Business District (CBD). The model explains how proximity to this center affects land values, given that the supply of centrally located land is fixed. Instead of analyzing transaction prices directly, the model uses the concept of bid rent to capture the maximum rent households (or firms) are willing to pay to live or operate at a given distance from the CBD.
What is ‘bid rent’ in the context of the monocentric model?
Bid rent is the maximum rent per unit of land that an agent (a household or a firm) is willing to pay at a specific location (distance x from the CBD) while maintaining a given level of utility or profit. In the residential setting, it represents the highest rent per square foot a household can afford at that location, reflecting the trade-off between housing costs and commuting expenses.
What are the core assumptions of the monocentric city model for residents?
The city has one central business district (CBD) located at x = 0.
All households are identical; each contains one worker who commutes to the CBD.
Each household earns the same income (y) and consumes exactly one acre of land for housing (h = 1).
Non-housing consumption is fixed (denoted as c).
Households incur a per-mile commuting cost (t) that increases linearly with distance from the CBD.
Utility is equalized across space, ensuring a no-arbitrage condition in housing choices.
How is the residential bid rent function derived in the monocentric city model?
Starting from the household budget constraint: y − t·x = c(var) + P_h(x)·h(var). Given the assumption that h = 1 (each household consumes 1 acre of housing), the equation simplifies to: P_h(x) = y − c − t·x. This equation shows that the maximum rent a household is willing to pay declines linearly with distance from the CBD, at a rate determined by the commuting cost (t).
What does the slope of the bid rent function indicate in this model?
The slope of the bid rent function is −t, meaning that for each additional unit of distance from the CBD, the maximum bid rent decreases by the per-mile commuting cost (t). This reflects the idea that households are less willing to pay high rents farther from the CBD due to higher commuting expenses.
What is the significance of utility equalization in the monocentric model?
Utility equalization (or the no-arbitrage condition) implies that, given the trade-off between housing costs and commuting expenses, households are indifferent between living at any location within the urban area. This equilibrium condition ensures that the residential bid rent function determines a unique spatial pattern of land use, with households paying less rent as distance from the CBD increases.
How is the ‘urban fringe’ defined in the context of the monocentric city model?
The urban fringe is the boundary of the urban area. It is typically defined as the distance from the CBD at which the bid rent (or the value placed on land by residents) falls to a level that makes alternative land uses (such as agriculture or undeveloped land) more attractive. Graphically, it is where the bid rent curve intersects the rent of the next best alternative use.
What is the key limitation of the basic monocentric model regarding housing consumption?
In the simplified model, every household consumes exactly one unit of housing. This approach ignores that-as a good becomes less expensive, consumers typically purchase more of it. In other words, it fails to allow for consumption substitution where households would buy more housing when rents are lower (further from the CBD) and less when rents are higher (closer to the CBD).
What is the monocentric model in urban land markets?
It is a model that explains how spatial access (proximity) shapes land markets, assuming that land supply in centralized locations is fixed.
Instead of transaction prices, what concept is central to the monocentric model?
The concept of bid rent.
What is bid rent in urban land markets?
It is the maximum rent per unit of land that a household or firm is willing to pay at a given location to maintain a given level of utility or profit.
How does the residential bid rent curve behave with distance from the CBD (Central Business District)?
It decreases linearly with a slope of -t, where t represents commuting costs.
What are the key assumptions for residents in the monocentric model?
- Every resident is identical
- They incur commuting costs t to the CBD
- All earn the same income y
- Each consumes exactly 1 acre of land for housing
- Non-housing consumption is fixed at c
- Utility is equalized across locations
What is the budget constraint equation for residents in the monocentric model?
𝑦 − 𝑡𝑥 = 𝑐ˉ + 𝑃ℎ(𝑥)ℎˉ
Since ℎˉ = 1, this simplifies to 𝑃ℎ(𝑥) = 𝑦 − 𝑐ˉ − 𝑡𝑥.
