Week 7: can money buy happiness - college

Question 1

What is the economist view of happiness and money? (2)

Answer 1

(1) Higher GDP higher levels of happiness
(2) Higher income means higher levels of consumption, thus higher levels of utility and happiness

Question 2

What is the difference between classical economics view and standard modern economics?

Answer 2

(1) Do people maximize utility OR under which circumstances does more wealth result in more income

Question 3

What is the Easterlin Paradox?

Answer 3

At a point in time happiness varies (positively) directly with income, but over time happiness and income relationship is nill

Question 4

What are 4 explanations of the Easterlin Paradox?

Answer 4

(1) Income inequality
(2) Decrease in non-material welfare
(3) loss-aversion
(4) adaptation and social comparison

Question 5

Why is average income a poor measure for happiness measurements? (2)

Answer 5

(1) It does not take income inequality into account
(2) median income is a better measure as it reflects consumption possibilities

Question 6

The elephant of inequality study showed winners/losers of economic growth cycles between 1988 - 2008, what were they?

Answer 6

Losers:
- Very poor remained very poor
Citizens of rich countries with stagnating incomes and former communist countries
Winners:
- Middle class in emerging economies
- Very rich and top 1%

Question 7

Are people tolerant for inequality? (3)

Answer 7

Yes, justice/fairness, expectations and underestimation

Question 8

Tell something about the Norwegian tax example and its outcomes

Answer 8

In 2001 Norwegian tax records became publicly available online:
- Decreased gap in happiness between rich and poor by 30%
- Increases gap in life satisfaction between rich and poor by 20%