Urban Economics

Problem Set #2
due Thursday, Oct 15, 11pm, ONLY ONLINE at NYU Classes
You can only submit one single file. Once submitted a Problem Set cannot be recalled anymore.
(1)!Go to Harvards Cluster Mapping Projects main site (http://clustermapping.us) and click on Clusters.
Scroll down until you see the green bubbles for Traded Clusters. Select Financial Services and click on Go to Cluster Dashboard.
On the left sidebar you now have various choices; select Economic Areas. Calculate the 1998, 2006, 2009, and 2013 the CR4, HHI
and Gini Coefficients for employment and for the annual payroll (which is the product of Employment*Annual Wage). For the Gini
Coefficient, assume that all regions are of identical size. You have to calculate 24 coefficients (see table below).

Year

CR4

1998
2006
2009
2013

1998
2006
2009
2013

0.3429
0.3287
0.3218
0.3090

HHI
Employment
0.0480
0.0461
0.0454
0.0444

GINI
0.7434
0.7554
0.7434
0.7457

0.5198
0.5041
0.5092
0.4922

Annual Payroll
0.1342
0.1277
0.1264
0.1279

0.8336
0.8466
0.8466
0.8474

(2)!There are 8 equally-sized counties in Steel-Land, which heavily depends on the production of steel. The steel industry employment in
the respective counties is given by:
County
Steel jobs

A
25

B
65

C
10

D
10

E
100

F
180

G
5

H
15

Calculate the Gini coefficient of job concentration.

share&
G&
C&
D&
H&
A&
B&
E&
F&

5.00&
10.00&
10.00&
15.00&
25.00&
65.00&
100.00&
180.00&
&
&
&

410&

0.01&
0.02&
0.02&
0.04&
0.06&
0.16&
0.24&
0.44&
&

Lorenz&
0.01&
0.04&
0.06&
0.10&
0.16&
0.32&
0.56&
1.00&

equal&
share&
Line&of&ED& diff&
0.125&
0.13&
0.11&
0.125&
0.25&
0.21&
0.125&
0.38&
0.31&
0.125&
0.50&
0.40&
0.125&
0.63&
0.47&
0.125&
0.75&
0.43&
0.125&
0.88&
0.31&
0.125&
1.00&
0.00&
sum&of&
heights&
2.26&
times&
width&
0.28&
GINI&
0.5640&

(3)!Assume there are only 6 counties in a country, and there are only three industries (beer, bread and shirts) that employ people. The
employment numbers are given in the Table below:
County 1
County 2
County 3
County 4
County 5
County 6

Employment Beer
20
10
12
40
10
25

Employment Bread
4
6
20
10
2
6

Employment Shirts
45
12
10
16
12
12

Calculate the ELQs for the following county and industry combinations:
(a) Beer and County 1
(b) Bread and County 2
(c) Bread and County 6
(a) ELQ= (20/117)/(69/272)=0.6738
(b) ELQ=(6/48)/(28/272)=1.2143
(c) ELQ=(6/48)/(43/272)=0.7907
(4)!Labor in Boom and Recession.
Assume there is a labor force of 15 workers at an isolated site. During boom the firm faces a demand curve of P=100-Q. During
recession it faces a curve of 80-2Q. Boom and recession are equally likely to occur.
How many workers are employed in boom, how many during recession? What are the corresponding wages? Calculate the consumer
surplus of the firm in boom and in recession. What is the expected surplus?
Boom: 100-P=15 ! P=85

CS = (15*15*.5)=112.5
Recession:
P=80-2*15=50
CS=30*15*.5=225
Expected surplus 0.5*(112.5+225)=168.75
Expected wage (needed for next question)=67.5
(5)!Now assume a large cluster where the labor supply is infinitely elastic.
Assuming the same demand curves as in the Question above and the average wage of the isolated site (also from the Question above),
how many workers are employed in boom? How many are employed during recession? What are the corresponding wages? Calculate
the consumer surplus of the firm in boom and in recession. What is the expected surplus?
Expected wage = 67.5
Set equal demand curve with w=67.5 to find quantity
Boom: 67.5=100-Q ! Q=32.5
CS(Boom) = 32.5*32.5*.5=518.125
Recession: 67.5=80-2Q ! Q=6.25
CS(Boom) = 12.5*6.25*.5=39.0625
Expected CS= (518.126+39.0625)/2 = 283.59375