CDAE1610 MIDTERM QUESTIONS WITH COMPLETE SOLUTIONS

1. Primary Data - ANSWER data you collected yourself (never gathered before) 2. Secondary Data - ANSWER data you got from someone else 3. Economies of scale - ANSWER Average cost of production decreases as output increases. Spreads fixed costs across more units produced. Specialization leads to higher productivity, indivisible inputs are expensive. Cities allow firms to share indivisible inputs and allow workers to specialize in their area of labor increasing productivity. Excessive size can generate diseconomies (bureaucracy, inefficiencies). 4. indivisible input - ANSWER an input that cannot be scaled down to produce a smaller quantity of output 5. Transportation Costs - ANSWER Density and spatial distribution of the world population have frequently been determined by both transportation costs and advances in transportation tech. 6. Scale economies in production & exchange - ANSWER industrial revolution unlocked power of scale (factories and labor specialization). Birthed several modes of transportation that lead to cheap trade. Resulted in an explosion of productivity where regions would chiefly produce according to their comparative advantages --> export economies. 7. Why do firms cluster? - ANSWER Input sharing, labor pooling, knowledge spillover 8. Agglomeration - ANSWER efficiency and cost savings that result from being close to suppliers, workers, and customers. 9. Input Sharing - ANSWER Concentration of firms in a geographical area allows them to share a larger base of supplier and be closer to customers. Intermediate inputs that have high fixed costs are reduced, larger number of units, production at a high scale. 10. Labor pooling and skill matching - ANSWER For both firms and workers thick labor markets provide protection against economic shocks. Easier to higher from a common pool of labor and workers are incentivized to find work in places where jobs are abundant (accepting a job is uncertain and costly). 11. Knowledge Spillovers - ANSWER Knowledge diffused from one firm to others among closely located firms. Occurs when workers move between firms or when urban dwellers share ideas during work and play. Human capital accumulation is faster through more interactions. 12. Codified knowledge - ANSWER exact prescription how to do something, not subject to decreasing returns to scale, marginal cost is zero 13. Tacit Knowledge - ANSWER kind of knowledge that's hard to transfer by writing it or verbalizing it, subject to increasing marginal cost and diminishing returns to scale. Industries whose productivity relies on tacit knowledge will relocate to areas where knowledge spillovers are cheaply generated to reduce costs. 14. localization effects - ANSWER The concentration of an industry in a city helps knowledge spillovers between firms, and therefore, the growth of that industry and of that city 15. Urbanization - ANSWER most important knowledge transfers come from outside the core industry, variety and diversity of near industries rather than geographical specialization promote innovation and growth. 16. Diseconomies of Agglomeration - ANSWER High cost of living when supply of housing is constrained. Excessive demands lead to high prices, congestion of transportation and public space. Pollution can overwhelm air and water supply. Crime. Poverty and social problems. 17. How agglomeration affects the middle line - ANSWER agglomeration raises the cost of land (rent) and labor (wages) but can lower the price of intermediate inputs (electricity, talent acquisition, logistics). Can also raise productivity of land/labor. 18. Creative Destruction - ANSWER Continuous process where innovation replaces outdated technologies and businesses, leading to long-run economic growth but also creating short-term disruption. 19. Examples of creative destruction - ANSWER New Good (horse and buggy --> automobile), New production method (mule/plow --> tractor), New Market (opening up a new previously embargoed trade partner), New Supply of Inputs (discovery of massive lithium outputs), New Industry Structure (deregulation of airlines --> more competition). Schumpeter excluded the digitization of analog products, new consumer preferences, new platforms. 20. Entrepreneurship - ANSWER process of identifying opportunities, taking risks, and creating new businesses or innovations. They drive economic growth, create jobs, stimulate competition. Self employment rates higher rural, lower barrier to entry, less economic alternatives. Employer establishment birth rates high in urban, greater opportunities / resources for businesses to grow. However it's high risk. 21. The Income Statement - ANSWER Top Line: total revenue or sales, reflects the local customer base and overall economic activity. Middle: operating expenses influenced by local costs like labor, rent, and supplies. Bottom line: net income or profit, effected by both local economic conditions and business efficiency. Location impacts everything through competition and access to resources. 22. Product Cycle - ANSWER stages a product goes through from development to obsolescence. Drives innovation as businesses seek to introduce new products or improve upon old ones, influence employment patterns and skill requirements across different industries. Shapes trade pattens as production can shift to lower cost locations. 23. Stages of the Product Cycle - ANSWER Introduction: new product, high costs, low sales. Growth: increasing sales, profitability. Maturity: sales peak, market saturation, focus on efficiency. Decline: sales decrease, some competitors exit, potential for product reinvention or abandonment. 24. Competitive Market - ANSWER A market in which there are many buyers and many sellers so that each has a negligible impact on market price. 25. Welfare - ANSWER overall wellbeing and satisfaction of everyone in the market (buyers and sellers) 26. Efficiency - ANSWER achieved when markets maximize total surplus. Prices in a market reflect all available information, and resources are allocated to their most valued uses without waste. 27. Pareto efficiency - ANSWER No reallocation of goods can make someone better off without making someone else worse off. However, can still have unequal outcomes, doesn't address fairness or social wellbeing, a pareto efficient outcome can still involve inequality or harm from externalities like pollution. One could own everything and everyone else nothing (still pareto efficient). 28. Equality - ANSWER how the total surplus is distributed among buyers and sellers 29. Equality concern - ANSWER An efficient outcome may still distribute benefits unequally 30. Equity - ANSWER While equality is giving everyone the same thing, equity is providing what's needed to achieve the same outcome. 31. Market failure - ANSWER occurs when free markets fail to allocate resources efficiently resulting in lost total surplus (can happen when prices don't reflect all costs/benefits or when resources are over/under consumed.) 32. Market power - ANSWER a firm or group can strongly influence prices. monopoly (one seller), oligopoly (few sellers), monopsony (one/few buyers). Can lead to reduced output, higher prices. Profits increase for the firm at the expense of consumers (pay more buy less). Perpetuated by barriers to entry. 33. Externalities - ANSWER exists when costs or benefits of a market action spill over to others who aren't involved. Negative - pollution, secondhand smoke, noise. Positive - education, vaccinations. 34. Asymmetric Information - ANSWER A situation in a transaction where one party possesses more knowledge / better knowledge than the other party. Can lead to higher prices, fewer trades, or poor quality goods dominance. Related issues (trust, fraud) - can be seen in car repair. 35. Moral Hazard - ANSWER Arises when people behave recklessly because they know they will be saved if things go wrong. Most common in insurance and can be seen in finance. Causes inefficiency and higher costs. 36. Firm - ANSWER transforms inputs into outputs through production. Coordinates land, labor, capital to create goods and services. Most are profit maximizing. Links households and markets. 37. Impact of Firms - ANSWER generate employment, wages, sustain households. Bring investment, innovation, and growth. Connect to other businesses. Can also create risks of inequality and instability. 38. Production in a Market Economy - ANSWER Firms seek to minimize costs and maximize revenue to remain competitive. Multiple firms compete for customers which drives innovation and efficiency. New firms can enter profitable markets while unsuccessful firms exit. 39. The Product Life Cycle - ANSWER The stages through which goods and services move from the time they are introduced on the market until they are taken off the market. 40. History of Urban Development - ANSWER Urban Growth in U.S. Cities is a story of transportation costs:• 1700s: early coastal "harbor cities"—like Boston or Charleston—shipped agricultural goods (from the inner "hinterlands") across the Atlantic Ocean• 1792: the Pennsylvania Turnpike greatly increased Philadelphia's "market area" by replacing dirt roads with stone and gravel• 1805: the steamboat was invented, allowing river freight trips both ways• 1825: the Erie Canal linked New York City's harbor with the agricultural areas of Upstate NY and the Great Lakes, cutting freight costs from about 20 cents per ton-mile to 1.5 cents (Bartlett, 1998).• 1850s: the transcontinental rail system quickly usurped the share of river and canal freight• 1950s: the Eisenhower administration passes the Interstate Highway Act 41. workforce development - ANSWER ensuring that firms have access to competent labor 42. What is economic development? - ANSWER Introduction of new goods and services into a regions portfolio of traded products; expansion of productive capabilities. Core activities - attraction, retention, expansion, entrepreneurship. 43. community economic development - ANSWER enhancing human wellbeing, welfare, quality of life. Economic and noneconomic development forces equally important. Opportunities for the residents of the community 44. What does Comm Dev look like? - ANSWER Building local capacity (leadership training, youth engagement, civic organizations). Place-based improvements (neighborhood revitalization, parks, safety, infrastructure). Expanding social capital (networks of trust, collaboration across groups). Supporting human development (education health access, cultural amenities). Focus is inward facing (meeting local needs, strengthening sense of community). 45. What are things that aren't Comm Dev? - ANSWER Recruiting a new factory (just economic development), purely real estate driven projects, research labs or exports that don't engage with local people. 46. Regional Portfolio of traded products - ANSWER collection of goods and services that a region sells beyond its local market, contributing to external demand and economic base growth. 47. Unpacking economic development - ANSWER Introduce new goods and services (that weren't available before and diversify/refresh an economy's offerings). Expand productive capabilities (skills, technology, resources of existing businesses to increase output, efficiency, or value-added production). 48. Economic Development Zoo - ANSWER Rabbits - entrepreneurs who multiply, start many small businesses, important for stocking new products in the economy. Gazelles - high growth firms in the takeoff stage; drivers of rapid job creation and expansion. Buffalo - mature firms targeted by recruitment efforts to sustain regional employment. Foxes: Savvy mid-sized companies managing mature products; focus on retention and incremental innovation Puffins: Declining or endangered firms facing potential closure; subjects of failed retention / restructuring efforts. 49. What does Economic Development look like? - ANSWER business retention and expansion, recruitment/attraction (site selection), entrepreneurship support (start ups, incubators, rabbits), product/industry rejuvenation, building traded sectors (exports, manufacturing niches) 50. What is not economic development? - ANSWER creating jobs without traded goods/services (walmart moves across town), one off events with no long term impact, improving only quality of life (parks), re distributional policies (circulating money already in the system, assuming research = development. 51. What is Growth? - ANSWER doing what we're currently doing by introducing more jobs, more buildings, more dollars, more people (in a manner that is the same as whats currently being done). 52. What is Development? - ANSWER Can include growth but dives deeper into improvements in well being, healthcare, education, sustainability, equity, opportunity. Long term, purposeful, permanent. 53. Rostows stages of development - ANSWER Traditional society (subsistence, agriculture, limited change), Preconditions to take off (building capacity, infrastructure, and investment increase. Take off (rapid growth, industrialization, surging investment). Drive to maturity: (Diversification, technological advance, rising standards). Age of high mass consumption: Consumer society with broad prosperity. 54. Growth w/out development? - ANSWER expansion of low wage jobs or polluting industries that raise gdp but don't improve education, health, or environment. Resource extraction that increases output and profit but doesn't improve social well being or local 55. Development w/out Growth? - ANSWER public health or education improvements that raise well being but don't increase output or new goods and services 56. Triple Bottom Line - ANSWER economic, social, environmental value of an investment. Social outcomes - health, education, equity, community wellbeing. Reduce poverty and inequality. Economic improvements lead to gains for everybody. Need to balance short term profits with wider responsibilities and long term social/environmental goals. Consider the environmental impacts of growth (pollution, resource depletion, biodiversity), protect ecosystem health.