The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 1

How important is economic growth? Does it really make people better off in the long run? Or, as the question is sometimes misleadingly put, "Can money buy happiness?"
(a) Why is that last question misleading?
(b) The behavior of almost everyone indicates that people believe they will be better off if they earn a larger income, because a larger income means the ability to acquire more of what they want almost, but not quite, without regard to what it is that they want. But to what extent is this desire for more relative to what others have? If everyone else in the society is also acquiring more, how much satisfaction will I obtain from getting more? Will the marginal benefit exceed the marginal cost?
(c) Our desires and satisfactions are often relative not only to what others have but also to what we ourselves have become accustomed to. A small amount of tasteless food can be the source of immense satisfaction to a very hungry person. Is the marginal satisfaction gained by upgrading from codfish to jumbo prawns or from processed cheese to brie as great as the marginal satisfaction in going from one cup of rice per day to two? The marginal cost of the last improvement is surely far less.
(d) Is per capita GDP an appropriate measure of well-being, even after we have made all the international adjustments? Do the procedures used to calculate GDP take adequate account of the social and psychological costs associated with turning out a larger gross domestic product?
(e) Per capita GDP can be increased by enlarging GDP or by shrinking the population. If rising GDP per capita indicates that the people of a society are becoming better off, then each additional child born into the society lowers the average level of well-being. Do the parents of the children usually reason this way? They are, after all, the only ones whose per capita income falls significantly with the birth of an additional child.
(f) Advocates of zero economic growth are principally concerned about the deleterious effects of economic growth on the environment. Does economic growth necessarily lower the quality of the environment?
(g) Rising GDP makes a lot of things possible that were previously impossible. What these things will be is going to depend largely on the level of GDP already obtained. In Ethiopia or Bangladesh, rising GDP could make possible for millions of people adequate nutrition as well as dental care that would enable them to avoid considerable pain and to keep their teeth into old age. What would a 2 percent growth rate in per capita GDP make possible for people in the United States over the next 35 years, the time that it will take at that rate for GDP to double? (For those who have serious doubts about the value of economic growth in today's world, we strongly recommend a small book by Peter Berger, a sociologist who has done extensive research on economics and culture: The Capitalist Revolution: Fifty Propositions about Prosperity, Equality, and Liberty , NY: Basic Books: 1986. Berger will fortify some doubts, but he will probably overcome a lot more.)