Deck 5: Market Determinants of Value

Question 1

A city's potential for growth or its susceptibility to decline is determined by a set of economic activities that the city provides for the world beyond its boundaries. Economists refer to this set of activities as a city's:

A) linkages
B) economic base
C) local economic activities
D) economies of scale

Answer 1

B

Question 2

An important effect of agglomeration economies on real estate is its impact upon market risk. Based on your understanding of this relation, which of the following statements is TRUE?

A) Properties located in a city with more advanced development of agglomeration economies will carry more risk and therefore suffer a larger price decline during an economic downturn than comparable properties in a city with less agglomeration.
B) Properties located in a city with more advanced development of agglomeration economies will carry less risk and therefore suffer a larger price decline during an economic downturn than comparable properties in a city with less agglomeration.
C) Properties located in a city with more advanced development of agglomeration economies will carry more risk and therefore suffer a smaller price decline during an economic downturn than comparable properties in a city with less agglomeration.
D) Properties located in a city with more advanced development of agglomeration economies will carry less risk and therefore suffer a smaller price decline during an economic downturn.

Answer 2

D

Question 3

Providers of convenience activities find it profit-maximizing to disperse over the region of potential customers to the point where each establishment is equidistant from another and is separated by the minimum distance that allows sufficient customers to support each establishment. The resulting pattern of establishment locations is referred to as:

A) central place pattern
B) clustering
C) concentric circle
D) multi-nuclei

Answer 3

A

Question 4

The magnitude of an economic base multiplier depends upon the amount of money that "leaks" out through expenditures outside of the city limits. The economic multiplier tends to be higher with each of the following EXCEPT:

A) A higher percentage of local household income is respent within the city.
B) The larger the city is.
C) The less isolated the city is from other cities.
D) The more tourism a city brings in.

Question 5

According to the bid-rent model, which of the following individuals would be the one most likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are located adjacent to each other at the center of the CBD)

A) A barista at the local coffee shop who uses a car to commute.
B) A doctor at the city hospital who uses a car to commute.
C) A barista at the local coffee shop who must walk to work.
D) A doctor at the city hospital who must walk to work.

Question 6

Most research oriented universities have many different colleges, each with separate administrations, students, curricula, and facilities. However, the university continues to exist as a total unit because of:

A) industry economies of scale
B) locational monopoly
C) economic inefficiencies
D) negative externalities

Question 7

In contrast to base activities, local economic activities (or secondary activities) serve the local business and households that are recirculating the income derived through the city's economic base. In other words, we can distinguish local economic activities from export activities by thinking about whether or not the activity brings money into the city from outside sources. Which of the following activities is NOT an example of land use for local economic activity?

A) Retail centers
B) Restaurants
C) Automotive services
D) Manufacturing Center

Question 8

The growth of the motion picture industry in Los Angeles, the petrochemical industry in Houston, the software industry in "Silicon Valley," are all examples of how the growth of an industry within a city can create cost advantages for future growth. Economists refer to this phenomenon as:

A) industry economies of scale
B) agglomeration economies
C) locational monopoly
D) economic inefficiencies

Question 9

Because a city's output capacities change slowly over time, it is important to understand the supply side (long-run) factors affecting urban growth. Which of the following would NOT be considered a supply-side factor that impacts a city's economic growth?

A) Nature of the available labor force
B) Quality of life within a community
C) Cooperation of local leadership and government
D) City's export activity

Question 10

Which of the following models of urban form is characterized by radial corridors or wedges representing the pattern of residential land use in relation to the location of the central business district (CBD)?

A) Bid-rent model
B) Concentric circle model
C) Sector model
D) Multi-nuclei model

Question 11

An early model of land use is the concentric ring model of urban form developed by E.W. Burgess. Of the following land uses, which would be closest to the downtown area of the central business district (CBD) according to Burgess' model?

A) Blue-collar residential land use
B) A zone of transition containing warehousing and other industrial land uses exists between the downtown area and the residential area.
C) White-collar clerical residential land use
D) Executive residential land use

Question 12

The location of competitors within a particular land use area may be influenced by whether the types of services and products are convenience activities or comparison activities. Which of the following is an example of a comparison activity?

A) Supermarket
B) Coffee boutique
C) Fast-food restaurant
D) Apparel store

Question 13

A fishing company was formed in Juneau, Alaska. Over the next decade, a canning plant, a processing plant, and a boat repair facility also opened in Juneau. This is an example of:

A) industry economies of scale
B) agglomeration economies
C) location quotient
D) linkages

Question 14

Six suburban office buildings have been constructed along six consecutive blocks in Roseland, New Jersey. This is an example of:

A) central place pattern
B) clustering
C) concentric circle
D) multi-nuclei

Question 15

According to the bid-rent model, which of the following changes in the model's underlying assumptions would most likely result in a decrease in rents for properties closest to the central business district (CBD)?

A) An increase in an individual's hourly wage
B) An increase in the average traveling speed of the individual's commute
C) An increase in the number of households attempting to live in the area
D) An increase in the number of days an individual must commute to work

Question 16

Understanding the revenue generating ability of the core export activities of a local area has important implications on the market value of real estate. When the income that these activities generate is re-spent within the community on other local goods and services, the community is benefiting through a:

A) dividend process
B) multiplier process
C) forced saving process
D) diversification process

Question 17

The demand for access between land uses is considered the "gravity" that holds a city together. These relationships between land uses are commonly referred to as:

A) linkages
B) economic bases
C) local economic activities
D) economies of scale

Question 18

A city's economic base can be viewed in terms of a multiplier process, in which the money that is brought in through export activities is then respent within the city. Which of the following economic activities is the least likely to be considered a high-impact or high-multiplier economic base activity?

A) Tourism
B) Retirement
C) Computer assembly
D) Specialized medical services

Question 19

Within the framework of the bid-rent model, as rents increase with proximity to the central business district (CBD), the tendency is for development to:

A) spread to the outskirts of the city
B) build upward on lots within the CBD to allow multiple tenants
C) cease completely
D) focus on low-income housing projects.

Question 20

Cities such as New York are able to host a variety of complex industries because of the development of specialized resources that support their growth. When specialized resources emerge in response to demand from multiple industries, this is referred to as:

A) industry economies of scale
B) agglomeration economies
C) locational monopoly
D) economic inefficiencies

Question 21

According to the bid-rent model, which of the following individuals would be the one least likely to live closest to the central business district (CBD)? (Hint: Assume that work locations are located adjacent to each other at the center of the CBD)

A) A barista at the local coffee shop who uses a car to commute.
B) A doctor at the city hospital who uses a car to commute.
C) A barista at the local coffee shop who must walk to work.
D) A doctor at the city hospital who must walk to work.

Question 22

Based on your understanding of the effect of agglomeration economies in real estate, you would expect institutional investors to most favor real estate investments in which of the following areas?

A) small urban markets
B) large urban markets
C) small rural markets
D) large rural markets

Question 23

A recent college graduate has obtained employment at a major financial institution in the big city. Since she just graduated, she has decided to continue to rent her college apartment in the suburbs and make the daily commute to the big city for work. She currently pays $1000 per month to rent an apartment in the suburbs. She works at the bank 5 days a week and it takes her 1 hour to commute from her home to her office. According to the assumptions of the bid-rent model, what should this recent grad be willing to pay in rent per month to live in the big city if her hourly wage rate is $20? (In your calculations, assume there are 4 weeks in a given month.)

A) $800
B) $1000
C) $1400
D) $1800

Question 24

A new faculty member at the local university pays $1500 per month to rent an apartment in the downtown area. She teaches on campus 3 days a week and works from home the remaining 2 days. On the days in which she must commute, given the heavy traffic congestion, it takes her 2 hours to commute from downtown to campus. According to the assumptions of the bid-rent model, what should this professor be willing to pay in rent per month to live near campus if her hourly wage rate is $25? (In your calculations, assume there are 4 weeks in a given month)

A) $1200
B) $1500
C) $2100
D) $2700

Question 25

According to the bid-rent model, which of the following changes in the model's underlying assumptions would most likely result in an increase in rents for properties closest to the central business district (CBD)?

A) A decrease in an individual's hourly wage
B) A decrease in the average traveling speed of the individual's commute
C) A decrease in the number of households attempting to live in the area
D) A decrease in the number of days an individual must commute to work

Question 26

Based on the following information, determine the location quotient for Music City and whether this city has a competitive advantage in the entertainment industry. Employment in Entertainment in Music City: 3,020; Total Employment in Music City: 656,785; Employment in Entertainment (nationally): 2,160,970; Total Employment (nationally): 106,201,232.

A) 0.23; No, the city does not have a competitive advantage in this industry.
B) 4.43; No, the city does not have a competitive advantage in the industry
C) 0.23; Yes, the city has a competitive advantage in this industry
D) 4.43; Yes, the city has a competitive advantage in this industry

Question 27

Within some types of land use, business location may be determined by the type of service or products that are offered to consumers. Based on your understanding of the differences between comparison and convenience activities, which of the following providers would operate in the convenience activity space?

A) Supermarket
B) Car dealership
C) Large public university
D) Apparel store

Question 28

Using the following information, determine the location quotient for this industry. Percentage of employment in financial services industry within the local community: 15%, Percentage of employment in financial services industry for the entire U.S.: 4.4%.

A) 0.3
B) 3.4
C) 10.6
D) 19.4

Question 29

An individual works downtown and pays $600 per month in rent for an apartment located 10 miles from her office. She has calculated that she spends 30 minutes per day driving each way to the office and it costs her $4 per day in gas and lost productivity. Using the framework of the bid-rent model, how much would she be willing to pay for an apartment downtown, assuming a 20 workday month?

A) $80
B) $440
C) $520
D) $680

Question 30

Based on the following information, determine the location quotient for Amusement City and whether this city has a competitive advantage in the amusement industry. Employment in Amusements and Recreation in Amusement City: 54,446; Total Employment in Amusement City: 578,477; Employment in Amusements and Recreation (nationally): 1,381,377; Total Employment (nationally): 106,201,232.

A) 0.14; No, the city does not have a competitive advantage in this industry.
B) 7.24; No, the city does not have a competitive advantage in the industry
C) 0.14; Yes, the city has a competitive advantage in this industry
D) 7.24; Yes, the city has a competitive advantage in this industry

Question 31

Using the following information, determine the location quotient for Motor City. Employment in Motor Vehicle Manufacturing within Motor City: 12,643; Total Employment in Motor City: 560,379; Employment in Motor Vehicle Manufacturing (nationally): 152,750; Total Employment (nationally): 106,201,232

A) 0.1
B) 12.1
C) 15.7
D) 44.3

Question 32

Using the following information, determine the location quotient for Springfield. Employment in Aerospace Products within Springfield: 30,044; Total Employment in Springfield: 208,054; Employment in Aerospace Products (nationally): 474,905; Total Employment (nationally): 106,201,232

A) 0.03
B) 12.10
C) 15.70
D) 32.29