Money Can't Buy Happiness

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Economists use the term utility to represent a measure of the satisfaction or happiness that individuals get from the consumption of goods and services. Because a higher income allows one to consume more goods and services, we say that utility increases with income. But does greater income and consumption really translate into greater happiness? In this paper, I will be showing how greater income and consumption does not really translate into greater happiness and how marginal utility is diminishing as income gets higher. However, consumption effect tells us that more consumption of good and services will increase happiness. At least to a degree, we see that money can buy happiness. But what, if anything, does research on consumer satisfaction tell us about the relationship between happiness and the concepts of utility and marginal utility? Based on the research, I found that money does not increase the happiness because as income increases the one's behavior of preferences or satisfaction changes and will result in diminishing marginal utility.

Sociologist and psychologist would say based on the definition of marginal utility, when additional satisfaction obtained from consuming one additional unit of a good, the one¡¯s happiness will increase as their income rises. And because of consumption effect, people are happier when they consume more goods and services. Studies by psychologists and socialists show that, both within a country and across nations, the happiness level of people increases with the income level, but only slightly. For example, using regional and cultural classifications, the Northern European countries with high incomes score top on happiness, followed by the group of English- speaking US, UK, Australia, and Ireland. Central and South American countries including Brazil come next, followed by the Middle East, the Central European, Southern and Eastern European, the Indian Sub-continent, and Africa which does not, however, come last. Southern and Western Europeans score significantly lower than Africa. And the last group is East Asia, including the country that leads in income, Japan. Singapore has an income level 82.4 times that of India. Even in terms of purchasing power parity instead of using exchange rate, Singapore is still 16.4 times higher than India in income. However, the happiness scores of both countries are exactly the same, both significantly higher than that of Japan. This is due mainly to the inter group difference between the high-income and high-happiness within either of these two groups.

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