The Economics of Happiness - Essay Example

Question I disagree with the ment that money can buy happiness. According to previous surveys, human beings will prefer to use less effort in looking for money. They instead devote such time to more important issues like health and family life. I support this statement because you can not look for money when you are sick or you do not have peace at home. This is because efficiency reduces when faced with such problems. According to Easterlin R.A. (2004), happiness is low when self-reported health is poorer. Negative impact of poor health to happiness is partly due to loss of income but mainly it is caused by limit to one’s usual activities. This is a clear indicator that people are more concerned about health than money. Furthermore, close relationships built in marriages help to boost happiness and loss of ones partner leading to dissolution of relationships that have a negative effect on happiness. According to Adam Smith’s theory of moral sentiments, people limit their ability to achieve happiness when they dwell on acquiring material wealth. The discovery by economists that money can’t buy happiness is a justification for high taxes and more government spending. According to Lee .D.R (2005), pursuit of money is addictive and reduces the time available for friends, family and other activities that result in genuine happiness. In addition, human happiness comes only from avoiding dependence on others. This is brought about by striving for improvements and achievement obtained by overcoming the challenges faced. In conclusion, we can not just totally dispute the fact that money does not bring happiness. Money does bring happiness especially with an increase in the level of income (which is a sign of achievement) although the happiness brought by money is temporary. Question 2 It is very important for people to look for money because it increases their purchasing power .Money also enables one to be able to do what he so wishes, for instance, investment. Money can be obtained by earning as an income, borrowing and from savings. All these three methods of acquiring money have an opportunity cost (defined as the value of foregone opportunity).For instance the opportunity cost of earning income is loss of time for other activities like recreation. Money held as savings has the foregone opportunity of loss of profit for income generating activities in which the money could have been invested. Finally, the foregone opportunity of borrowing is the high interest rates although such borrowed money can be invested in more income generating activities in future. Therefore everyone strives to get money by whatever means considering the opportunity cost. The means of acquiring money whose opportunity cost is low is the best method chosen. Marginal utility of money is the extra satisfaction derived from an extra unit of money spent. Marginal utility of money is never constant because an extra unit of money given to a poor person will add much to his satisfaction than if the same coin was given to a rich person. This means that poorer people continue striving to obtain more money as compared to the rich because by doing so, their marginal utility increases. It therefore makes sense for people to pursue money especially when an increase in their money amounts will increase their utility. Production is the conversion of raw materials into more usable form. Money can not be considered as a factor of production but all the other factors are directly dependent on money. For instance without money wages cannot be paid, capital cannot be acquired and also the best entrepreneurial skills cannot be used in production. Therefore people should continue pursuing money because it can be invested in the production process and generate great returns in future. Question 3 Standard of living is described by both an increase in per capita income and an increase in the welfare of people. It is true that households demand money for transaction purposes which enables them to buy what they need thereby satisfying their needs. Satisfaction of needs can not be used as a measure of the standard of living of households because needs may be satisfied but when the living conditions (examples education, health care and access to social amenities) continue to be poor, then the standard of living continues to be poor. Therefore average income can not be used as a good measure of the standard of living of a country. According to the Killen Roos ecochart website, Standard of living can be measured using the following criteria: Per Capita income-This is obtained by dividing the total GNP by the total number of households. It shows the amount of income that is available for each household. This contributes to a decent living because people are able to obtain what they need. A higher per capita income will therefore indicate a high standard of living because individuals will be able to satisfy their needs because of the high income. Daily per capita caloric supply as a percentage of requirements-This measures whether people have enough to eat. It indicates the extent to which an individual takes in enough calories to be healthy. When people take in enough calories, they are healthy and their standard of living is increased. The human development index-this was devised by the United Nations in the 1990s and gives a worldwide perspective of how well people are living. It has several components first, the life expectancy, the education levels including enrolment rates and adult literacy rates. It therefore means that countries experiencing high a life expectancy that is high have high living standards.In addition high adult literacy rates and school enrolment rates is an indication of high standards of living. Social health index -This describes the social well being of a nation by using indicators. These indicators include first child poverty, health care coverage and high school completion. This is a measure that is common in the US for assessing the welfare of the different states. It therefore means that a state with low poverty levels, good healthcare coverage and high school completion is regarded as having high living standards. Infant mortality rates-This is the number of new born who die before one year in every 1000 children born. A country with high standards of living has a low mortality rate due to the good health care. The measurement of the standards of living therefore takes into account several criteria. This means that one indicator is not sufficient to be used for measurement of welfare. It is therefore important to incorporate all the above measures when evaluating people’s welfare. In conclusion, apart from having enough money to buy needs, human beings also require to satisfy their social needs in order to regard themselves as having high standards of living. References Easterlin, R.A. The Economics Of Happiness .2004.133 (2) 26-33. Retrieved April 17, 2010, from http://www-rcf.usc.edu/~easterl/papers/Happiness.pdf “How do we measure standard of living” The Ledger .2003. Retrieved April 17, 2010, from http://www.bos.frb.org/education/ledger/ledger03/winter/measure.html Lee, D.W. “Who Says Money Cannot Buy Happiness”. The Independent Review 5(3) 2005. Retrieved April 17, 2010, from http://www.independent.org/pdf/tir/tir_10_3_05_lee.pdf Read More