Assess whether an increase in real income improves subjective happiness within the UK

Edexcel A-Level Economics Paper 2 June 2022 Extract

With reference to Figure 2, assess whether an increase in real income improves subjective happiness within the UK. (June 2022)

1. Overall, higher real incomes is most likely to improve subjective happiness.
2. Figure 2 shows that, as people earn more income, ranging from £10,000 up to £40,000+, subjective happiness increases.
3. The survey indicates an increase in happiness from 7.02 to 7.13, which is due to higher incomes being correlated with a better quality of life.
4. Quality of life and living standards refer to consumers' ability to meet their needs and wants.
5. Higher real income means that incomes are rising faster than the rate of inflation.
6. This means that people can use their money to satisfy an increasing portion of their needs and wants, for example by travelling more, buying more luxury goods, going out for nicer meals.

1. However, an increase in real income does not always improve subjective happiness in places like the UK.
2. The Easterlin paradox suggests that people might care more about their relative income than their exact individual income.
3. Therefore, if people's incomes are rising with economic growth, this may have less impact on subjective happiness.
4. After a point, higher incomes seem to have a diminishing marginal utility since higher incomes are linked to more stressful jobs, longer working hours, environmental damage, and possibly higher levels of income inequality.
5. Figure 2 even shows that those earning under £10,000 are actually the happiest day-to-day.

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