Wu-Qi Liu 20240425 ECON 363 Assignment 2 Q1. a) Uncertain.

. Policymakers should not rely on just ONE measure of poverty but should consider all measures of poverty to make sound policies. Each measure has unique parameters and must be taken into consideration. Absolute measures of poverty are defined in terms of minimum income or consumption levels needed for basic necessities and are used to define poverty rates. Relative measures of poverty measure poverty with respect to income distribution. Policy gap ratios should also be considered because it can measure the depth and intensity of poverty. So depending on the analysis criteria, all these measures may be important. b) Uncertain. The downside to this policy is that it will be regressive for low income households. On the other hand, if this policy makes it so that consumers face the true marginal cost of electricity supply then it is an efficient policy. c) Uncertain. It depends on the amount of tax credit given to consumers. An increase in tax on dirty energy will reduce their budge constraint. Even if consumers get a tax credit equal to the amount of tax paid by consumers on dirty energy, their spending habits on energy may not return to the original value. Although the credit will raise consumer budget constraint outward, it may not return to the original points. In a sense, there might actually be an increase in consumer welfare in that dirty energy consumption will be permanently reduced, providing a positive externality (reduced pollution) so the tax credit will allow consumers to spend more on other goods. d) False. In fact, a commodity tax induces a contraction of the output of the commodity supplied. This may in turn be a negative externality for society. On the other hand, a subsidy can be used to increase the output supplied which confers a positive externality on society. e) Uncertain. Shadow prices do in fact equal market prices when there are no distortions or externalities. Q3.

Q4. Policies that increase minimum wage can actually increase poverty which is the opposite of what is intended. Although such a large increase in minimum wage (from $8 to $16.74) will make those who maintain their jobs to be much better off, it will be much more difficult for people to find new jobs. Higher minimum wage acts as a price floor which increases the cost of hiring new employees and maintaining the current work force. Firms budget constraint has now decreased with this policy and so they must adjust by layoffs and reduced hiring. This in turn causes more poverty as the amount of unemployment rises drastically. According to empirical data gathered by Sen, Rybczinski, and Van de Waal (2010), many teens tend to be minimum wage earners and contribute to a sizeable portion of household income for families living under Low Income Cut Offs (LICOs). A rise in minimum wage means a large portion of teens will be unemployed, resulting in an increase of population below LICOs. Additionally, this policy will make New Westminister quite attractive to out of town workers further increasing job hunt tension and reducing opportunities for local residents. Also firms may find it more economical to simply relocate to other cities that have lower minimum wage policies. This will

Wu-Qi Liu 20240425 result in lower tax revenues for the local government as well as a shrink in employment opportunities for local residents, further increasing poverty as a whole.