More specifically, it is a branch of microeconomics that studies the urban spatial structure and the location of households and firms (Quigley 2008).
Since its formulation in 1964, Alonso's monocentric city model of a disc-shaped Central Business District (CBD) and the surrounding residential region has served as a starting point for urban economic analysis.
Several explanations for polycentric expansion have been proposed and summarized in models that account for factors such as utility gains from lower average land rents and increasing (or constant) returns due to economies of agglomeration (Strange 2008).
When industries cluster, like in Silicon Valley in California, they create urban areas with dominant firms and distinct economies.
Looking at land use within metropolitan areas, the urban economist seeks to analyze the spatial organization of activities within cities.
In attempts to explain observed patterns of land use, the urban economist examines the intra-city location choices of firms and households.
Considering the spatial organization of activities within cities, urban economics addresses questions in terms of what determines the price of land and why those prices vary across space, the economic forces that caused the spread of employment from the central core of cities outward, identifying land-use controls, such as zoning, and interpreting how such controls affect the urban economy (O'Sullivan 2003:14).
Urban economists analyze the location choices of households in conjunction with the market effects of housing policies (O'Sullivan 2003:15).