decentralization of population. decentralization of employment; 60 largest metro areas

Decentralization of Population

Population Distribution (in millions)

Year

Total Population in

Metro Areas Population in Central Cities

Population in Surrounding

Ring

Metro Population as Percentage of Total US

Population

Central City Population as Percentage of Metro

Population

1910

34.5

22.9

11.6

37.5 %

66.4 %

1930

61.0

39.0

22.0

49.7 %

63.9 %

1950

84.9

49.7

35.2

56.1 %

58.5 %

1970

153.9

67.9

85.8

75.7 %

44.1 %

1990

192.7

77.8

114.9

77.4 %

40.3 % Source: Ruchelman, R. (1996). Fiscal Problems of the Evolving Metropolis. In Management Policies in Local Government Finance. Washington, D.C.: International City/County Management Association. (pp. 35-57).

Decentralization of Employment;60 Largest Metro Areas

Employment Distribution (in thousands)

Year Center Jobs As % of Total

Metro Jobs Outer Jobs As % of Total

Metro Jobs Total Metro Jobs

1976 17,418 52% 15,991 48% 33,409 1980 19,041 49% 19,541 51% 38,582 1986 21,243 46% 23,996 53% 45,239

Change, 1976-80 9% 22% 15%

Change, 1980-86 12% 23% 17%

Source: Ruchelman, R. (1996). Fiscal Problems of the Evolving Metropolis. In Management Policies in Local Government Finance. Washington, D.C.: International City/County Management Association. (pp. 35-57).

Concentration of Poverty

Overview of Welfare Economics

• Pareto Efficiency• Supply & Demand• Market Equilibrium• Marginal Costs & Marginal Benefits• Market Failure• Externalities• Public Goods• Common Resources

“A planner’s primary obligation is to serve the public interest.”

- AICP Code of Ethics and Professional Conduct

Welfare Economics:The study of how different forms of economic activity and different methods of allocating scarce resources affect the well-being of individuals or communities

Pareto Efficiency:An allocation of resources is considered Pareto efficient if no alternative allocation can make at least one person better off without making someone else worse off

Supply & Demand

Demand

The relationship between the price of a good/service and the quantity purchased by consumers

Law of Demand:All else being equal, quantity demanded decreases as price increases.

(Negative relationship between price and quantity = downward slope)

Demand

PriceQuantity

Demanded

-$ 100

0.25$ 89

0.50$ 75

0.75$ 62

1.00$ 50

1.25$ 37

1.50$ 25

1.75$ 12

2.00$ 0 $-

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

0 10 20 30 40 50 60 70 80 90 100 110

Pric

e

Quantity

Supply

The relationship between the price of a good/service and the quantity that producers are willing to supply

Law of Supply:All else being equal, quantity produced increases as price increases.

(Positive relationship between price and quantity = upward slope)

Supply

PriceQuantity Supplied

-$ 0

0.25$ 12

0.50$ 25

0.75$ 37

1.00$ 50

1.25$ 62

1.50$ 75

1.75$ 89

2.00$ 100$-

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

0 10 20 30 40 50 60 70 80 90 100 110

Pri

ce

Quantity

Supply and Demand

$-

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

0 10 20 30 40 50 60 70 80 90 100 110

Pric

e

Quantity

PriceQuantity

DemandedQuantity Supplied Outcome Price Will:

$ - 100 0 Shortage Rise $ 0.25 89 12 Shortage Rise $ 0.50 75 25 Shortage Rise $ 0.75 62 37 Shortage Rise $ 1.00 50 50 EQUILIBRIUM $ 1.25 37 62 Surplus Fall $ 1.50 25 75 Surplus Fall $ 1.75 12 89 Surplus Fall $ 2.00 0 100 Surplus Fall

Catherine's Demand

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

0 2 4 6 8 10 12 14

Quantity

Pri

ce

Nicholas' Demand

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

0 2 4 6 8 10 12 14

Quantity

Pri

ce

Price Catherine's

DemandNicholas' Demand

Market Demand

-$ 12 + 7 = 19

0.50$ 10 6 16

1.00$ 8 5 13

1.50$ 6 4 10

2.00$ 4 3 7

2.50$ 2 2 4

3.00$ 0 1 1

Market Demand

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

0 5 10 15 20

Quantity

Pri

ce

MB

Social Surplus

Consumer Surplus:The difference between what consumers are willing-to-pay and what they have to pay

Graphically, the area under the demand curve and above the price

Producer Surplus:The difference between producers’ total revenue and marginal cost

Graphically, the are above the supply curve (MC) and below the price

Consumer Surplus

$-

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

0 10 20 30 40 50 60 70 80 90 100 110

Pric

e

Quantity

Producer Surplus

$-

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

0 10 20 30 40 50 60 70 80 90 100 110

Pric

e

Quantity

Social Surplus

Consumer Surplus:The difference between what consumers are willing-to-pay and what they have to pay

Graphically, the area under the demand curve and above the price

Producer Surplus:The difference between producers’ total revenue and marginal cost

Graphically, the are above the supply curve (MC) and below the price

Social Surplus

$-

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

0 10 20 30 40 50 60 70 80 90 100 110

Pric

e

Quantity

Realities of the Market

The private market only ensures efficiency under strict conditions, including: Many buyers and sellers (no monopolies) Identical goods and services Perfect information No barriers to entry No externalities (side effects) …

Even a “perfectly competitive” private market: cannot effectively allocate public goods or common

resources Does not address issues of distribution or equity…

“Four Vital Functions of Planning”(Klosterman, 1985) Argument for and Against Planning

1. Improves information for public and private decision making

2. Considers external effects of individual and group action

3. Promotes collective interest, esp. w/ respect to public goods

4. Considers distributional effects of market actions (equity)

Market Failure

Externalities: Economic side effects or “spillovers.” costs or benefits that stem from an economic activity, but that affect people other than those directly involved in a market transaction.

Can be POSITIVE or NEGATIVE

Market Failure

Example of negative externality

Driving involves direct cost: gas, driver’s time

…and creates indirect, or external, costs: pollution, congestion, road maintenance, etc.

The individual driver does not bear the indirect costs, and does not consider them in his/her decision-making process

Market Failure

Example of positive externality:

A beekeeper’s bees create benefits that can be captured: honey, sold to customers

… and external benefits that cannot be captured: bees pollinate nearby orchards

The orchard farmers do not pay the beekeeper for this benefit, so the beekeeper does not consider it in his decision-making process

Figure 2 Pollution and the Social Optimum

Copyright © 2004 South-Western

Equilibrium

Quantity ofAluminum

0

Price ofAluminum

Demand(private value)

Supply(private cost)

Socialcost

QOPTIMUM

Optimum

Cost ofpollution

QMARKET

Figure 3 Education and the Social Optimum


Quantity ofEducation

0

Price ofEducation

Demand(private value)

Socialvalue

Supply(private cost)

QMARKET QOPTIMUM

Market Failure

Public Goods: Defined by non-rivalrous consumption and non-excludability

Non-rivalrous consumption: Good or service can be used by one person without detracting from the ability of other to use it

Non-excludability: Impossible or impractical to exclude some people from enjoying the benefits of a good service, even if they are unwilling to pay for it

Topics

Budgets especially revenue sources,

– Especially taxes

Guidelines for Evaluating Taxes

Equity: Progressive / Regressive Taxes

The Tax Wedge, Elasticity, and Incidence

Guidelines for Evaluating Taxes

Ease of Administration

Equity1. Ability to pay (progressivity vs. regressivity)2. Benefit principle of taxation

Efficiency1. Effect on social surplus (welfare)2. Ability to raise revenue

Tax Equity

Progressive: Burden of tax increases w/ income. Higher inc

households spend a greater percentage of their income on the tax than lower income households.

Regressive:Burden of tax decreases w/ income . Higher inc households spend a smaller percentage of their income on the tax than lower income households

Proportionate: Burden of the tax remains the same over all levels

of income

Major State and Local Taxes as Percent of Income for Family of Four

25,000$ 50,000$ 75,000$ 100,000$ 150,000$ Income 1.28% 3.10% 3.75% 4.17% 4.61%Property 3.46% 3.60% 3.67% 3.53% 3.40%Sales 1.84% 1.75% 1.75% 1.66% 1.57%Auto/Gas 0.89% 0.50% 0.61% 0.60% 0.43%

Source: District of Columbia Office of Revenue Analysis. (2004). Tax Rates and Tax Burdens in the District of Columbia: A Nationwide Comparison.

Income Level

The Efficiency Effects of a Tax


Size of tax

Quantity0

Price

Price buyerspay

Price sellersreceive

Demand

Supply

Pricewithout tax

Quantitywithout tax

Quantitywith tax

The Effects of a Tax Levied on Sellers


(MC)Size of tax

Quantity0

Price

Demand

Supply

P*

Q*

P* + t

The Effects of a Tax Levied on Sellers


Size of tax

Quantity0

Price

Price buyerspay


Demand (MB)

Supply

Pricewithout tax

Quantitywithout tax

Quantitywith tax

(MC)

The Effects of a Tax Levied on Buyers


Size of tax

Quantity0

Price

Demand

Supply

P*

Q*

P* - t

(MC)

The Effects of a Tax Levied on Buyers


Size of tax

Quantity0

Price

Price buyerspay


Demand

Supply

Pricewithout tax

Quantitywithout tax

Quantitywith tax

(MC)

Demand (MB)



Size of tax

Quantity0

Price

Price buyerspay


Demand

Supply

Pricewithout tax

Quantitywithout tax

Quantitywith tax

(MC)

Tax Incidence

The party that actually pays the tax to the government (whether that is the seller or buyer) can pass part of that tax forward to consumer, or backward to the producer.

The party that the tax is shifted to bears the tax incidence

The incidence depends on price elasticity of supply and demand

Elasticity

The incidence of taxation, the amount of deadweight loss caused by a tax, and the amount of revenue raised by a tax all depend on how responsive the quantity supplied and quantity demanded are to changes in price



Size of tax

Quantity0

Price

Price buyerspay


Demand

Supply

Pricewithout tax

Quantitywithout tax

Quantitywith tax

(MC)



Size of tax

Quantity0

Price

Demand

Supply (MC)

2.00

1.50

2.50

Size of tax

MC

Tax Incidence and Elasticities


Demand

Supply

Inelastic Demand

Price

0 Quantity

Size of tax2.00

1.75

2.75

Size of tax



Elastic Demand

Price

0 Quantity

Sizeoftax Demand

Supply

2.00

1.25

2.25

Size of tax



Inelastic Supply

Price

0 Quantity

Demand

Supply

Size of tax



Elastic Supply

Price

0 Quantity

Demand

SupplySizeoftax

Tax Distortions and Elasticities


Demand

Supply

(c) Inelastic Demand

Price

0 Quantity

Size of taxWhen demand isrelatively inelastic,the deadweight lossof a tax is small.



(d) Elastic Demand

Price

0 Quantity

Sizeoftax Demand

Supply

When demand is relativelyelastic, the deadweightloss of a tax is large.



(a) Inelastic Supply

Price

0 Quantity

Demand

Supply

Size of tax

When supply isrelatively inelastic,the deadweight lossof a tax is small.



(b) Elastic Supply

Price

0 Quantity

Demand

SupplySizeoftax

When supply is relativelyelastic, the deadweightloss of a tax is large.

Corrective Tax (negative externalities)


(Pvt MC)Size of tax

Quantity0

Price

Demand (MB)

Supply

P*

Q

(Social MC)

Q*

P

The Effects of a Tax on Social Surplus


Quantity0

Price

Demand

Supply

Pricewithout tax

Quantitywithout tax

The Effects of a Tax on Social Surplus


Taxrevenue (T × Q)

Size of tax (T)

Quantity0

Price

Demand

Supply

Quantitywithout tax

Quantitywith tax

Price buyerspay


Deadweight Loss and Tax Revenue from Three Taxes of Different Sizes


Tax revenue

Demand

Supply

Quantity0

Price

Q1

(a) Small Tax

Deadweightloss

PB

Q2

PS



Tax revenue

Quantity0

Price

(b) Medium Tax

PB

Q2

PS

Supply

Demand

Q1

Deadweightloss



Tax

rev

enue

Demand

Supply

Quantity0

Price

Q1

(c) Large Tax

PB

Q2

PS

Deadweightloss

Sprawl Traits

1. Unlimited outward extension of development2. Low-density residential/comm. development3. Widespread strip commercial4. Leapfrog development5. Auto dependence (private auto)6. Segregation of land uses by zones7. Reliance on trickle down or filtering process to provide

housing to low income HH8. Lack of centralized control of land uses9. Fragmentation of power over land use (many localities)10. Great fiscal disparity among localities

Burchell, Robert. (1998) The Costs of Sprawl – Revisited. Transportation Cooperative Research Program Report 39. Washington, DC: National Academy Press.

decentralization of population. decentralization of employment; 60 largest metro areas

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