Answer Happy

Practice Question 7.1 Consider a monocentric city where all households have a single wage earner and the daily wage is $52 for all wage earners. The round-trip commuting cost to the city center is $6 per mile. c is the composite good and q is housing space (denominated in 100s of square feet). Assume that the price of the composite good is $1 per unit. A utility maximizing household would pay a rental price of $4 per 100 sq ft per day for rental properties located 2 miles from the Central Business District (CBD). A. Draw a budget constraint (for the day) for that utility-maximizing household living 2 miles from the CBD with the composite good c on the vertical-axis and q on the horizontal-axis. Be sure to name the quantity of housing at the point where the budget constraint meets the horizontal-axis and the quantity of composite good at the point where the budget constraint meets the vertical-axis. B. On the same graph used in part a), draw a representative utility curve if the utility- maximizing household would choose to rent 200 sq ft of housing when located 2 miles from the CBD. Be sure to label the utility maximizing consumption of c on the graph.