ECON 155 Lecture Notes - Lecture 15: Living Wage, Utility
Chapter 11 March 6, 8
• The problem: treats the quality of life as strictly an economic program subject to the productivity function
• Can quality be reduced to quantity?
o Yes (ie: number of years you live)
o No (happiness may be hard to measure)
• We find citizens crowded out by consumers
• Roback model
o In addition to food and housing, he adds amenities to the function
o Model shows that all consumers are all well off because the market tends to equality
o As the price per square meter rises, so does the rise in income – mutually dependent on each other (hard to
say that one comes before the other)
o The household can be compared to the private firm, so it is not surprising that the firms lend themselves to
the same analysis as private households
▪ No matter how big or small the entities are, they are subject to the utility function
o As real estate price declines, then income increases (ie: firms will move to another location to increase
company profits – lower cost per square meter, incorporation laws, less taxes)
▪ For households, this can be true also (ie: cost per meter declines if you move out of the Bay area →
leads to more take home income not spent on housing)
o The public sphere (poleitia) is not in the Roback model – with mathematical modeling, the public sphere is
often not included
o All the amenities are supplied to a minimum (but adequate) level in all locations in all communities
▪ If this is true, the Roback model then there would be less incentive for mobility
▪ Firms may want to roll back these constraints (amenities – health, safety, living wage) because it
costs a lot of money (ie: if everyone is highly educated, then it will cause wages to go up and
possibly less minimum wage laborers in the market)
▪ People might believe that they are entitled to these ameities, hih ostais piate fis’
profits
• Quality of life
o The best places to live also might be the highest taxed, most expensive, and enjoy the strongest public
institution
• Adam Smith – ote elouetly aout the good life
o Thought there were distortions the private household introduced into the public
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