Assess the impact of a fall in real incomes on subjective happiness

Edexcel A-Level Economics Paper 2 June 2019 Extract

With reference to the last paragraph in Extract C, assess the impact of a fall in real incomes on subjective happiness. (10 marks)

1. A fall in real incomes is most likely to lead to a fall in the measure of subjective happiness
2. Falling real incomes refers to the fact that incomes are falling after you take inflation into account.
3. So, cost of living is increasing at a faster rate than incomes.
4. As a result, people cannot afford as many goods and services, and therefore find it harder to satisfy as many of their needs and wants.
5. Extract C mentions that consumers would 'become more vulnerable to falling behind' with payments, meaning that they have to think about giving up some of their luxuries.
6. This means that living standards fall, and therefore subjective happiness might also fall as a result.
7. Higher bills and more difficult decisions can also increase stress levels, which will affect measures of subjective happiness.

1. However, the overall impact on happiness could be small if this fall in real income is small or temporary.
2. The extract also mentions that 'the UK economy recently recorded the lowest rate of unemployment since 1975'.
3. This suggests that job security and consumer confidence are likely to be high, which suggests that stress levels are unlikely to suddenly rise.

1. Secondly, a rise in real incomes does not always correlate to higher levels of happiness.
2. Higher incomes might be correlated with longer working hours or more stressful jobs.

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