Assignment I


Most of us, I think it is safe to say, everyone of us wants to be happy.
In this technological era, how many of us are truly happy from the heart
regardless of developing countries or developed countries. Hence, the economic
of happiness is an approach for the economists to measure the happiness of the community
technically those more commonly used by psychologists (Graham, Carol and Sandip
Sukhtankar, 2004). In my opinion, happiness of every single varied accordingly
to their own interests. Some of them are materialistic kind, money-oriented
people, capitalistic people, they are the same kind, money is the king. But
they are some community in this world, they can’t feel any happier than living
in their ranch or small houses. However, the Asia’s Switzerland, Bhutan has
been named the world’s happiest country with only the size of Indiana and
population of Alaska. It is impressive that a small kingdom like this would be
the happiest country in the world. Nevertheless, Bhutan has one of the fastest
growing gross domestic product (GDP) in the world (Lukas Canan, 2010). As such,
one simply survey can be carried out in which you might ask a respondent
“Generally, how happy do you think you are – very happy, pretty happy, or not
so happy?”. Or the other way around, “How satisfied are you with your life as a
whole – very satisfying, not-so satisfying, not at all?” (Richard A. Easterlin,
2006) Happiness depends on three sets of factors, one of the factors is
economic factors such as unemployment, income, and inflation. In fact, these
factors are linked with the basic economics theory, the economics of demand and
supply. For instance, when there is demand there will be supply, hence, the
employment rate will be improved. And when the demand is higher than the
supply, there will be an increased in price of goods, therefore income will be
improved (Bruno Frey & Alois Stutzer, 2001).


Literature review

As many of you have heard the theory of demand and supply in economic
studies. The supply and demand analysis are the bread and butter of economic
studies. It can also be said as the law of demand and supply is the most
fundamental concepts of economics. Therefore, regardless of your job and
personality, the basic presupposition of demand and supply is still imploded into
the daily actions of our society. Now, let’s discuss about the demand and price
of good in the market. In science term, the price of goods is inversely
proportional to the demand. On the other hand, we can look at the relationship
between price of goods and the demand visually in Figure 1.

Figure 1: Price
and Demand

Additionally, the price versus demand graph is portrayed out from the
perspective of the consumer. And this is also why the demand is the lowest when
the price of goods reached its’ maximum. Yet, how does demand relates to the
happiness? This can be explained as we assume that the product is an Iphone, if
the phone is now selling at $500 then there will would be many people buying
Iphone. In contrast, when the unit price of an Iphone is $50,000 and by that
time Iphone will be a rare consumer product which only can be bought by the
wealthy people (Arthur, 2011).


Whereas, the relationship between the price of goods and available
supply of an item from the perspective of the producer is directly
proportional. The available supply increasing significantly when the price of
goods is increasing. This relationship can be seen in Figure 2.

Figure 2: Price
and Supply

As mentioned earlier, the curve is drawn based on the point of view for
supplier. The supplier is willing to produce more of the product if the price
of that product is high, so the supplier is willing to manufacture more of the
good in order to realize greater profits. In addition to that, the falling
prices will affect the availability of that product in the market as the
supplier may not be able to cover the input costs upon selling the goods. Now,
if the input cost to produce an Iphone is at $50 including the variable cost,
fixed cost and labour cost. The selling price of an Iphone must be higher than
$50 to break even or we could say if the selling price of Iphone is below $50,
the production is highly unprofitable (Arthur, 2011). According to the IMF, most
of the people will feel happy when they have money. Some of them said they will
be happier if they can live in a bungalow. While some of them want a luxury car
and branded stuff. So we can say that money will affect the demand and supply
in the market and end up affects the happiness of a nation.


Theory/ Framework

Economic of happiness is a quantitative measurement of happiness by
referring to the index of positive and negative effect, well-being, quality of
life, life satisfaction, health and other concepts such as psychology and
sociology. Demand and supply theories are the part of the economic of happiness
and that is the basic (Carol, 2008). There are also a few determinants to measure
happiness. Most commonly used theory to measure happiness is gross domestic
product (GDP) and gross national product (GNP), both are used as national
financial measures. GDP and GNP have been used as a measure of successful
policy in most countries, among them the happiest country in 2017 is Norway,
second is Denmark and followed by other countries (Katia, 2017). The second
theory is individual income, the economists had announced that the well-being
is a simply function of income. Nevertheless, according to researchers, the effectiveness
of well-being is substantially diminished once the wealth of one has reached a
subsistence level. Besides, there’s another factor to make people happier
rather than increasing income, which is psychological therapy (Boyce, C.J Wood,
2009). Next theory is social security,
this perspective focuses on the role of the welfare that improves quality of
life. By improving quality of life not only the basic needs are met, the society
should have greater degree of freedom. This freedom argument is suggested by
the U.S. political scientist, Benjamin Radcliff, who presented this argument in
his journals, which also stated that by providing a generous welfare, a higher
level of life satisfaction can be achieved (Radcliff, 2001). The forth theory
is employment, as for employment, for the well-being of those who are employed
is significantly higher than those who are unemployed because employment provides
income that can support a family, philanthropy and education (Stam, 2016). Furthermore,
there are a few theories such as freedom and control, religious diversity and
happiness and leisure.



In this 21st century, the satisfaction of human being is very
subjective as everyone may have different dreams and needs in their life. In
fact, the law of demand and supply may have impact on happiness on the society
but as mentioned earlier, the demand and supply theories can only have
satisfied the materialistic mindset of one but not the mentality. The mentality
of one is much important to achieve the happiest country in the world, the
pre-requisite measurements are important such as GDP & GNH, individual
income, social security, employment, relationships & children, freedom &
control, religious diversity and happiness & leisure. Since demand and
supply cannot be used as the only tool to measure the happiness of a nation, we
will now discuss about gross national happiness (GNH).


In fact, the term gross national happiness is born in the tiny country
of Bhutan for shining a light on happiness. The phrase ‘gross national
happiness’ is actually created by the forth King of Bhutan, King Jigme Singye
Wangchuck in the year of 1972. At the same time when he declared this phrase,
he also mentioned that “Gross National Happiness is more important than Gross
Domestic Product” (Dorji, 2012). Additionally, the Bhutan’s economic and social
policy have both been improved after the idea of GNH was proposed. Since the implementation
of GNH has captured the imagination of others, the “Gross National Happiness
Index” has became a tool that can be used for creates policy incentives for the
non-government organization and government sector. In depth, the GNH index had
included both traditional areas of socio-economic concern and less traditional
areas of socio-economic concern. First, the traditional areas of socio-economic
concern include the health of society, education standards and the living
standards of society. As for less traditional, it includes the aspects of
culture and psychological well-being. Moreover, there are total nine domains
that constructed the GNH index such as psychological well-being, health,
education, time use, cultural diversity and resilience, good governance, community
vitality, ecological diversity and resilience and living standards (Dorji,

According to World Happiness Report 2017, Norway has gained the first
place among Denmark and the other countries and became the world happiest
country despite the worldwide oil prices declining (John, 2017). Obviously,
this has not only demonstrated what the countries can do with their money, yet,
not just to increase in finance matters. The Norway governance not only choose
to move on in oil and gas industry deliberately, they also investing in the society
such as educations and other welfares for the future generations (Katia, 2017).
This is how the Norway protected itself and gained the first place, emphasis on
the future than the present to gain high levels of mutual trust among their
nation, shared purpose, generosity and good governance.


The employment rate in the Norway is surprisingly hits approximately 74%
of people whom age in between 15 to 64 years old have a paid job (OECD). According
to the OECD, the average employment rate is 67%, in fact, Norway’s employment
rate is one of the highest in OECD’s list. Furthermore, the working hour may
vary from different organisation and field, this is totally subjective and
personal. When the amount of time spent in working and one’s preference does
not match, this will diminish in subjective well-being in both men and women
who are working (Angrave, 2015). Other than that, there will be negative impact
in social’s happiness when one is over-employed or under-employed. Over-employed
is mean that the employee’s working hour is longer than his/ her preference
while under-employed is referring to the employee’s working hour is shorter
than his/ her preference. Both over-employed and under-employed may be
detrimental to the happiness. According to research, employment can have detrimental
effects on relationship as well, when the husband is unemployed or not looking
for any job which will affect the subjective well-being and quality of life (Kim,
2013). The satisfaction is partner’s life is reciprocally to the working hours
of their partner who is underemployed. For instance, the life satisfaction of men
is greatly reduced than women when both the men and women are underemployed (Wunder,
2013). Yet, just being in a relationship greatly reduces the impact
unemployment has on the subjective salubrity of an individual (Meer, 2014). In
long term wise, the higher the rates of unemployment, the greater the negativity
effect on subjective well-being of the employed.


According to (Binder, 2013), for those who had left their present job
and became self-employed has a greater life satisfaction in their life, as this
is like an achievement in a lifetime and can increase subjective well-being. On
the other hand, those who became self-employed after left their job reported a
greater life satisfaction than those who are working for others or those who
became self-employed because of unemployment. Besides, employment, self-employed
and unemployment may influence happiness, yet, retirement is also one of the
reason of happiness. The effects of retirement are very subjective as well, as
someone who voluntarily retired can remain stable subjective well-being than
those who involuntarily retired. Greater life satisfaction may increase the
happiness of one. So, we can say employment rate is also one of the measurement
tools to estimate the happiness of the society.


Another determinant that can affect the economic of
happiness is individual income, as mentioned in this working paper earlier,
generally, for people who are high earners are the people who are satisfied
with their life. In short, individual income is also one of the happiness
measurement index in economic happiness. According to Rozanne’s journal, people
who are high earners, perhaps, might not be a happier person, it depends on how
they spend their money, whether did they spent their money right. In Rozanne’s
journal, there are eight recommendations which can influence the way of
spending money and improve happiness. The first recommendation is spending
money on “experiences” rather than goods (Rozanne, 2011). For example, people
can spend money on travels, adventures or even go for course rather than
spending on branded stuff. Or they can even spend on a short-term course of psychological
therapy. According to Ryan Howes, a licensed clinical psychologist based in California,
he stated that people who had attended a psychological therapy course is 32
times more cost effective at increasing their happiness than those who didn’t
attend (Ryan, 2009). The second recommendation is donating money to others.
People can be happier by donating money to the charities, old folks home or orphanage.
Additionally, Rozanne’s journal advice people to adjust their mindset to “pay
now, consume later” instead of “consume now, pay later” (Rozanne, 2011). This
is one of the reason why many teenagers in Malaysia who announced bankruptcy because
of credit cards and car loans. In my point of view, spending with credit cards
are for those who have strong financial requirement as they able to payback the
debts to their bank after instead of paying the interests.


Another determinant in gross national happiness index
is freedom and control. There is a study that was conducted at the University
of Zurich, they suggested that democracy and federalism help in brining
well-being to society (Bruno, 2000). The first reason is that citizens involve
in a more active role for monitoring of professional politicians. And the
second reason is the freedom and ability to get involved in the political process
included election for new governance. Both two reasons can be found in Norway,
the happiest country in year 2017, what makes Norway the happiest country is the
trust in government for a better future and well-being. In the most recent
election in Norway, the total voter turnout was 78% of those who had registered
as a voter (OECD). So, the freedom and control of society is an essential tool
to measure happiness as well. The last determinant to discuss is happiness and
leisure. According to research, happiness and leisure relies on subjective
well-being as an adequate measurement tool of happiness. Actively taking part
in leisure activities may result in greatest levels of subjective happiness. By
taking part in leisure activities such as sports, entertainment and vacation
may help in release the tension in work. Taking a break in this stressful world
and adjust the physically and mentality to the fullest. Moreover, spending free
time for leisure activities is subjective to well-being as well. Time spent on
leisure must be wisely because research shows that people spending time for
shopping, reading books, attending cultural events, getting together with
relatives and family, listening to music and attending sporting events are much
appropriate than spending time on the internet or watching TV programme. People
who spent their leisure time wisely are the people who achieve great life
satisfaction and are happier than those who didn’t spent wisely (Newman, 2014).




Happiness isn’t just about the money, it is just part of the happiness. In
demand and supply theories discussed earlier, both theories are related to
money and quantity. Yet, they can’t measure happiness of a nation properly. According
to IMF, economists in almost every country measure a country’s success by
measuring its GDP but not GDP couldn’t measure the well-being of a nation
accurately. Theoretically, when a country meets higher GDP is a success country,
but the truth is that even high per capita income doesn’t mean that the nation
is living happily, reported by the economist, Richard Easterlin, in the 1970s
(IMF, 2017). As a conclusion, IMF measuring the well-being and happiness of a
country with GDP and this has proved that it is not reliable as there may be
other factors that may influence the happiness of human-being. As mentioned in
earlier part, most of the economists measure the happiness of a country with
Gross National Happiness index in which the measurement includes psychological
well-being, health of society, health of economy, education for future generation,
cultural diversity & resilience, good and trustable governance, community
vitality, ecological diversity & resilience and the living standards. In
short, we can say that to achieve happiness in population, there are social
aspects and personal aspects. As for social aspects, it included the welfare given
to the community, freedom and happiness. For instance, the tax paid to the
government can provide benefits to the community, building school for kids,
hospitality, medical check-ups and so on and so forth. While, as stated
earlier, freedom and happiness, this is included the freedom for the society to
vote during election and monitoring the action by politicians. On the other
hand, as for personal aspects, it included the employment, individual income
and leisure. Employment rate plays an important role to measure the happiness,
as employment and individual income are both internally related. Individual
income comes from employment/ self-employed. Then, individual income can allow
someone to spend money on their leisure time. Hence, Gross National Happiness index
and the determinants discussed in analysis earlier are the major tools that can
calculate happiness of a nation accurately. 

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