General Equilibrium Analysis

Abstract

In Chap. 3, a partial equilibrium urban economics model was constructed, hence explaining the existence of illegal settlements in the flood-prone areas in Palangkaraya City in the Central Kalimantan Province. The model employed the EFDR on household assets, hence constituting land quality in the city. Applying the model leads to the conclusion that, in the flood-prone areas, the bid rent of high-income households can become lower than that of low-income households. Nevertheless, the partial equilibrium model is slightly lacking in reality because income is assumed to be exogenously given. In contrast, a general equilibrium model takes into account firms at which the households can endow available working time to obtain income. For that matter, income can be endogenously determined.