Which statement best describes bid-rent theory in urban economics?

• A. Land rent and price decline with distance from the CBD, with high rents near the CBD supporting dense retail and office uses.
• B. Land rent increases with distance from the CBD, encouraging peripheral industrial zones.
• C. Rent is uniform across all distances due to market equilibrium.
• D. Only agricultural land is affected by distance from the CBD.

Answer: (A)

Bid-rent theory explains how land value declines as you move away from the central business district because proximity to the CBD maximizes accessibility to customers, workers, and networks. This accessibility makes sites near the center the most valuable, so retailers and office users bid up rents there, leading to dense, vertical development to make the most of limited space. As distance from the CBD increases, land is cheaper, encouraging uses that don’t require prime access, such as manufacturing, warehouses, or certain types of housing. That downward gradient in rent with distance—and the concentration of high-value, space-intensive uses near the center—fits the statement that land rent and price decline with distance from the CBD and that high rents near the CBD support dense retail and office uses. The other options misstate how rents typically behave, either suggesting rents rise with distance, remaining uniform, or implying only agricultural land is affected.