Final answer:
When people reach a moderate income level, further increases do little to increase their happiness due to the concept of diminishing marginal utility of money. This means that each additional dollar brings less and less additional happiness. Several factors, such as adaptation, social comparison, and the importance of relationships and experiences, contribute to the limited effect of income on happiness.
Step-by-step explanation:
When people reach a moderate income level, further increases do little to increase their happiness due to the concept of the diminishing marginal utility of money. This means that as income increases, each additional dollar brings less and less additional happiness. For example, a person who earns $10,000 per year will likely experience a significant increase in happiness if their income increases to $20,000 per year. However, a person who earns $100,000 per year may not experience the same increase in happiness if their income increases to $110,000 per year.
There are several reasons why further income increases may not lead to greater happiness:
- Adaptation: People tend to adapt to their new income levels and their expectations increase accordingly. This means that even with more money, people may not feel any happier because their desires and aspirations have also increased.
- Comparison with others: People often compare their income and wealth to others. If someone's income increases, but they see that others around them have even higher incomes, they may still feel dissatisfied and unhappy.
- Relationships and experiences: While money can provide a certain level of comfort and security, research has shown that happiness is often derived from meaningful relationships, fulfilling experiences, and a sense of purpose in life. Further income increases may not necessarily lead to more of these factors.