Carolyne Wang – ISP

16 06 2011

Marked Journals:

Journal 1

Journal 2

Journal 3

Journal 4

Four Comments to be Marked:

Comment 1

Comment 2

Comment 3

Comment 4

Ten Comments:

Comment 1

Comment 2

Comment 3

Comment 4

Comment 5

Comment 6

Comment 7

Comment 8

Comment 9

Comment 10

Income Inequality Summary Component

3 06 2011

Key Concerns/Issues

1. The gap between the rich and the poor is growing in Canada, since those earning the highest incomes are experiencing greater increases in their incomes than lower wage earners.
2. The economic recession has worsened income inequality in Canada. After the recession, high paying blue-collar manufacturing jobs have been replaced with low paying service sector jobs that offer fewer work hours, so although it appears that jobs have been recovered and unemployment has gone down, people are earning less money than before.
3. Businesses have been given a lot of wealth in order to create the trickle down effect, either through creating new jobs or expansion of the company. However, businesses are using the money instead in providing large bonuses and higher salaries for executives, keeping the money locked in at the top. Providing wealth to businesses has not benefited the poorer members of society as was expected.
4. Many Canadian jobs that require fewer skills are being outsourced to countries such as China, India and Bangladesh, where workers can be paid less to do the same job. This leaves the people who had the same jobs in Canada with no job or income.

Resulting Challenges to Canadians in the next 10 years

1. With income inequality exacerbated, the government has to dish out more tax dollars to spend on social welfare services. This reduces the amount of tax money available to fund activities that can stimulate real economic growth.
2. People with low incomes or reduced incomes have little money to spend. This reduces consumer spending, which can shift aggregate demand to the left and cause another recession.
3. Generally, extreme income inequality is connected to a lower quality of life. With income inequality becoming a bigger concern in Canada, it is likely that those with a lower-income will experience a lower quality of life e.g. shorter life expectancies, more health problems.

Supporting Statistics and Evidence

1. It costs more to provide emergency housing and hospital care for the homeless for a year than it does to provide supportive housing to the homeless for a year. Also, it costs more for a homeless person to stay at the hospital than for a non-homeless person:
2. Income of the top wage earners in Canada, and a graph showing increasing income inequality in Canada. Also, more people marry others with similar incomes now than before:
3. Gini coefficient increased in Canada, and number of hours worked by lower-income earners decreased:
4. Low income earners experienced less growth in income than high income earners, which worsens the income gap between the rich and the poor:

Possible Solutions

1. One solution to worsening income inequality is the Guaranteed Annual Income (GAI), which gives Canadian families with low incomes a guaranteed source of income so that they can provide for themselves sufficiently.
2. Increase income taxes for the rich, who have a large portion of Canada’s wealth. The tax revenue can be redistributed to increase income equality, for example by providing money to low-income families to boost consumer spending and increase aggregate demand. This can be done by increasing the tax rate in higher income tax brackets.
3. Increase corporate taxes. This would essentially have the same aim as increasing income taxes for the rich, as it will help redistribute Canada’s wealth more evenly. Also, corporate revenues may have been given to company executives, who would invest the money instead of spending it, which doesn’t increase GDP. If the government took this money, it would spend it, which would increase aggregate demand in the economy and cause economic growth.
4. Cut income taxes for the poor. This would increase their disposable income, which helps them live more sufficiently and increase their quality of life, as well as contribute to the economy through increased spending.

How paying people’s way out of poverty can help us all

24 05 2011


Discussion Questions:

  1. Should lower income families be taxed less? Should higher income families be taxed more?
  2. Do you think providing low income families with a set annual income will encourage economic growth? Are there any distorted incentives caused by this solution?
  3. Should the minimum wage be increased to solve the problem of income inequality?

Marijuana: The New Cigarette (to be marked)

15 05 2011

Marijuana use is currently illegal in Canada except for medical purposes. However, this has not prevented the development of a black market for marijuana that is worth billions of dollars, the existence of tens of thousands of grow ops in British Columbia, and the fact that 4.5 million Canadians (about 14% of the entire population) used marijuana in 2004. With the prevalence of marijuana in Canadian society, it is obvious that its prohibition is ineffective and that the legal battle against marijuana has been lost. It is time that the government introduce market based policies to influence the use of marijuana and benefit from its market. In other words, it is time for the government to legalize marijuana.

The Externalities of Marijuana Being Illegal

Governments can control for the negative externalities of marijuana use by applying command and control policies or market based policies. Command and control policies are usually regulations that prohibit or require certain behaviours, whereas market based policies involve the use of taxes (taking away money) or subsidies (giving money) to encourage a desired behaviour.

By criminalizing marijuana possession, the Canadian government is using only a command and control policy in its attempt to reduce the use of marijuana. The problem with this is that, unlike market based policies, it offers little economic incentive for people to comply with the law, and as a result causes many negative externalities to develop as people try to dodge around the law. For example, criminalizing marijuana possession has caused the formation of a black market for marijuana, where people operate grow ops and sell marijuana to each other in secret. This market is worth billions of dollars, but the government does not profit from it because the market is not regulated. Also, the money gained from the marijuana market often ends up in the hands of criminals, who use the money to perform more illicit activities.

Another negative externality of criminalizing marijuana is the high cost of running the judicial system involved in court trials for marijuana trafficking, putting criminals in jail and policing for marijuana possession and growing. According to Canadian Alliance MP Keith Martin, $150 million dollars would be saved in court costs every year if marijuana possession was legalized. The financial resources going into enforcing the law would not be a huge matter, if it were not for the fact that it has not reduced marijuana consumption. Of the millions of marijuana users in Canada, less than 1% of them are caught and more than half of that is let off with only a warning.

Criminalizing marijuana has not reduced the supply or the demand for marijuana to yield a socially desirable equilibrium quantity.

The Benefits of Legalizing Marijuana

To eliminate the negative externalities of using command and control policies to regulate marijuana, the government should use more market based policies. For example, cigarettes are regulated using both kinds of policies. The government uses command and control policies through the regulation of the legal smoking age, and through advertisements printed on cigarette packs detailing the negative health effects of using marijuana. On top of that, the government also uses a market based policy by imposing an excise tax on cigarettes, which raises the prices paid by consumers and thus decreases demand for cigarettes. This places the supply and demand of cigarettes at a healthy level.

The government can use similar strategies to regulate the marijuana market, for example by placing similar advertisements in shops where marijuana is sold and on packages of marijuana. The government can also impose excise taxes on marijuana. Using this strategy, legalizing marijuana possession can actually reduce its usage more than criminalizing it. Based on the principles of supply and demand, if marijuana was legalized, there would be an increased number of grow operations as people flood the now legalized market in an attempt to make money. This would shift the supply curve to the right. The equilibrium point for the market would then be shifted to a lower price, increasing the quantity used. However, if excise taxes are applied to marijuana, like they are to cigarettes, the supply curve would shift towards the left. The amount of tax can be adjusted to such a level that the equilibrium point of the marijuana market actually yields a lower quantity consumed than at first, thus meaning that marijuana use has decreased.

There is the possibility that a black market for marijuana will still exist even after it is legalized. This can happen if the excise tax on marijuana is too high. Suppliers may decide not to comply with the regulations in the legal marijuana market, and instead sell marijuana at a lower price to willing buyers to make a higher profit. This will increase costs for the government because the government must then spend money on policing and regulation to ensure that sellers pay their taxes. To reduce the possibility of this happening, the government can ask marijuana retailers to list their suppliers and then search for the suppliers to impose taxes on.

Legalizing and applying excise taxes to marijuana can decrease the quantity demanded and supplied to a more socially desirable level.

Legalization is the Right Way to Go

The government should treat marijuana with a more market based approach. Just like how cigarettes are regulated through command and control policies and market based policies, marijuana should be regulated the same way. The combination of command and control policies and market based policies would be most effective in reducing marijuana use while at the same time benefiting the Canadian economy.

Maybe this isn't such a bad idea.

The Business of Fashion: Clothing Prices on the Rise

5 03 2011

The price of cotton has more than doubled in cost over the last year, and as a result many fashion retailers are forced to charge customers a higher price for clothing. This rise in the cost of cotton is caused by both a decrease in supply and an increase in demand. The supply of cotton has decreased as a result of the cost of factors of production, because the costs of manufacturing and labour in countries such as China and India are increasing. Also, the number of sellers has decreased because floods in Pakistan and heavy rains in China slowed production, and so fewer cotton farmers were able to cultivate the land and sell their cotton. The cotton market is experiencing an increase in demand from developing countries, and this is likely because of the increasing number of buyers, though the reason is unclear in the article. The result of a decrease in supply of and an increase in demand for cotton has caused an increase in its equilibrium price; however the quantity of cotton exchanged between sellers and buyers is unclear in the article.