Shahid Khan – ISP

19 06 2011

New Journal

Economics of Economics Class- Last Journal

Marked Journals

1  Paying students cash for Grades

2 Walmart- Good or Bad?

3 Marijuana should be legalized

Comments to be Marked

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Other 6 comments

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Does Income Inequality Help Cause Financial Crises?

6 06 2011

Here is the article:

  1. Do you think that rising income inequalities is a primary cause of financial crises or a secondary cause?
  2.  Do you think it is possible that income inequalities are not a cause, but an effect of financial crises?




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:
http://www.theglobeandmail.com/news/national/how-paying-peoples-way-out-of-poverty-can-help-us-all/article2011940/
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:
http://www.theglobeandmail.com/news/national/the-rewards-of-the-rich/article1819892/?from=1819803
3. Gini coefficient increased in Canada, and number of hours worked by lower-income earners decreased:
http://economix.blogs.nytimes.com/2011/05/03/inequality-rising-across-the-developed-world/
4. Low income earners experienced less growth in income than high income earners, which worsens the income gap between the rich and the poor:
http://www.nationalpost.com/news/Economic+news+Inequality+complex/4782730/story.html

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.





Marijuana – Should be legalized!

16 05 2011

Cannabis, also known as marijuana, among many other names, refers to any number of preparations of the Cannabis Plant  intended for use as a psychoactive drug or for medicinal purposes.  Marijuana is being used by kids, teenagers and adults in today’s society. Apparently there is a great demand for this product, yet it is not legalized. There were three million Canadians who used marijuana in 2002, according to Statistics Canada. That’s about 12 per cent of the population older than 15, up from seven per cent in 1989. The Canadian Medical Association estimates that about 1.5 million Canadians smoke marijuana recreationally. Taking a look at these statistics one can just imagine how much revenue Canada’s government has lost due to the illegalization of marijuana.

There sure is a failure in the market for marijuana. People who don’t get it use different and illegal ways to get marijuana. By illegal ways I’m referring to the black market. In this situation we can see the concept of price floor where there is not enough supply and the demand is greater than supply. Consumers in this case use other ways to get what they want. So this has created a black market in Canada for marijuana. People buy marijuana from the black market where products are not taxed due to which the government looses a lot of money.  The government is always trying to catch these people because they loose out on taxes that people are suppose to pay. But then again why not just legalize marijuana if you want taxes?

A study estimates that the average price of 0.5 grams (a unit) of marijuana sold for $8.60 on the street, while its cost of production was only $1.70. It is true that Increased marijuana use can have ill effects on the health of the population but the increased sales bring in more revenue for the government. However, if legalized, governments can control how much marijuana is consumed by increasing or decreasing the taxes on the product. There is a limit to this, however, as setting taxes too high will cause marijuana growers to sell on the black market to avoid excessive taxation.

Just like cigarettes smoking marijuana has some negative externalities as well. The smoke sure does destroy not only your but other people’s health as well. There are many negative effects of marijuana. The short-term effects of marijuana include:

  • Distorted perception (sights, sounds, time, touch)
  • Problems with memory and learning
  • Loss of coordination
  • Trouble with thinking and problem solving
  • Increased heart rate, reduced blood pressure

Sometimes marijuana use can also produce anxiety, fear, distrust, or panic.

Although marijuana has all these effects, so does smoking cigarettes and drinking alcohol. If the government can charge taxes on cigarettes and alcohol then they should do the same for marijuana.

In conclusion, every drug has its own effects on the consumer and the society.  I think marijuana should definitely be treated like alcohol and tobacco in terms of taxation. I’m sure the government can control the consumption of marijuana by implying reasonable taxes. They should use the command and control policy where there are laws imposed on certain things. This is something they should think about.  I think marijuana should be legalized. The government is loosing a lot of money by not legalizing marijuana in fact they are loosing billions of dollars. There should be laws against the consumption of marijuana. It should be treated the same way as alcohol and tobacco. It should be taxed. This way the government will earn vast amount of revenue and people will be happy.