On the Easterlin Paradox

Here is the difference between undergraduate calculus and graduate economics:

Undergraduate calculus

Let f be a function from the positive reals to a closed interval [a,b]. Prove that if f is monotonically increasing, its derivative goes to zero.

Graduate economics

Let f be a function from the positive reals to a closed interval [a,b]. Note that even when f is monotonically increasing, its derivative goes to zero. Create a whole body of literature based on this amazing fact.

For extra credit, detail the policy implications of this fact.

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(The Easterlin Paradox is the observation that when you ask people how happy they are on a scale from 1 to 10, this happiness value first grows fast with higher incomes, but then it plateaus. It doesn’t grow forever.)

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