This is Urban Economics!

2. (3|) pts) This exercise uses the Rosen-Roback model to analyze changes in the local housing price and wage after a change in local tax polices. Housing price : p {a} (5 pts) In the diagram draw workers' indifference curve. Is it upward or downward sloping? Briey explain why. {11) (5 pts) Draw rms' iso-cost curve in the same diagram. Is the iso-cost curve upward or downward sloping? Briey explain why. (c) (5 pts) Suppose local government decide to increase business taxes, and use the rev- enues to build a library for local residents. Suppose the library has no impact on firms' produciion, but it increases' the amenities for workers. What would happen to work- ers' indifference curve? What would happen to rms' iso-cost curve? {d} (10 pts) How will the equilibrium wage change? How will the housing price change? What is the underlying migration ow? (e) (5 pts) Now analyze the scenario described in part {c} in the framework of local labor markets. Draw the local labor demand curve and the local labor supply curve. Show how the demand curve and the supply curve change. Explain how wage and employ- ment will change