The Demand for Cities

Summary

In this segment, economist Ed Glaeser introduces the fundamental concepts of urban economics using supply and demand graphs. He simplifies the model by assuming a city named Gotham with identical houses and equal commutes for all residents. The demand for living in Gotham is determined by the sum of wages and amenities, compared to the next best alternative city, Metropolis. The willingness to pay for housing, based on this sum, forms a demand curve. Glaeser explains how changes in wages, safety, and amenities can shift the demand curve, affecting housing prices in the city.

Takeaways

• 📈 The course aims to be engaging but also covers essential urban economics concepts through simplified visual aids like graphs.
• 🏙️ The demand for living and working in a city, exemplified as 'Gotham,' is based on the sum of wages and non-wage benefits, or 'amenities,' relative to other places.
• 🏘️ The demand for housing in a city is represented by a downward-sloping demand curve, showing the varying willingness to pay among potential residents.
• 💼 Wages and amenities, such as traffic congestion and restaurant quality, are considered in the context of the next best alternative city, 'Metropolis'.
• 📊 The demand curve is continuous, assuming technical conditions that prevent it from having jumps or discontinuities.
• 🏡 The city's housing price is determined by the willingness to pay of the marginal resident, with a fixed number of homes implying a capped population.
• 💰 An increase in city wages or improvements in city amenities shifts the demand curve upward, leading to higher housing prices without an increase in population.
• 📉 Conversely, a decrease in city wages or amenities shifts the demand curve downward, reducing housing prices.
• 🔄 The script suggests a static model where residents move once and live forever, with homes having a perpetual lifespan.
• 🔄 The discussion on housing prices considers both home purchase prices and rental prices, acknowledging the complexity of housing markets.

Q & A

What is the primary purpose of the economics videos mentioned in the script?

The primary purpose of the economics videos is to provide the basic concepts of urban economics, stripped of history and pictures, using only a few graphs as visual aids.

Why does the speaker feel morally compelled to present the economics concepts in a certain way?

The speaker feels morally compelled to present the economics concepts in a straightforward manner because they believe it is essential for understanding how economists truly approach cities.

What tool is fundamental to understanding the demand for living and working in a city according to the script?

Supply and demand graphs are fundamental to understanding the demand for living and working in a city.

What is the hypothetical city called in the script where the demand for living and working is being discussed?

The hypothetical city is called 'Gotham' in the script.

What assumptions are made about the houses and commute in Gotham for the sake of simplicity?

It is assumed that every house in Gotham is the same and everyone faces exactly the same commute.

What are the two benefits each person gets from living in Gotham according to the script?

Each person gets a wage and a flow of non-wage benefits, which are called amenities.

What factors are included in the term 'amenities' as described in the script?

Amenities include all the good and bad things related to living in the city, such as traffic congestion, cool restaurants, and personal preferences like proximity to family.

How is the willingness to pay determined for living in Gotham according to the script?

The willingness to pay is determined by the sum of wages and benefits relative to the next best place one could live, such as Metropolis.

What does the demand curve represent in the context of housing prices in Gotham?

The demand curve represents the price of housing in the city, with the willingness to pay of the millionth person indicating the price of a home.

How does an increase in wages for everyone in the city affect the housing prices according to the script?

An increase in wages for everyone in the city causes the demand curve to shift up, leading to a rise in housing prices, which rises enough to offset the increase in incomes.

What happens to the demand curve and housing prices if the city becomes safer or more pleasant?

If the city becomes safer or more pleasant, the demand curve will also rise, causing housing prices to rise in turn.

What would cause the demand curve to shift down and what is the effect on the city's housing prices?

The demand curve shifts down if amenities or income in the city decline, which results in a fall in the city's housing prices.