Increase in Income and its Effect

Group: It represents an informal or formal set of individuals who have similar level of income, lifestyle, job level, etc.

General Increase: It is the increase in income level that everyone in the group experienced (more or less the same increase).

Specific Increase: It is exclusive and not everyone in the group experienced that.

Individual: An individual forms a unit of the group. She moves usually within her group and level of people. A junior accountant is unlikely to upgrade to a Seven Star hotel in case of income increase where she will run into a CEO.

How does rise in Income Level affects us? If affects our consumption and savings pattern, priorities, etc. Our basket of goods surely rises a few notches up higher.

Taking a group of people with similar qualifications and relatively same or nearly same job level, let us consider their income level at A1 approximately. The basket of goods they buy at this level is B1. The position indicated in the graph is (A1,B1).

Considering a rise in the income level across a group of people, the income curve shifts rightwards. (A2,B2) now represent the basket of goods that the group will now buy. An individual will realize that the shift is general and all within the same informal group have shifted to the new curve.
While the new basket contains more goods but the increase is not exclusive to any individual but general, i.e., “everyone” (in the group) experienced.

A 50% increase in the Income level across the “group” will not cause the satisfaction level to increase proportionately but less than proportionately. However, a “specific” and “exclusive” increase in the Income level will cause the satisfaction level to increase almost proportionately or more than proportionately. An individual will consider “general” increase as normal and exclusive as “special”.


At first, an individual tends to compare his Income level among his immediate group mates. An exclusive increase is not alone but always accompanies the general increase. An exclusive increase gives him access to a basket higher basket but that is not available to the group he belongs (belonged). As he moves within his group, his exclusive recent access to the higher basket gives more satisfaction than the income increase. It is not only an income rise, it is an upgrade to a new group – at point (A3,B3). The individual is now actually on a new curve (representing new group) which is further right to is previous group’s new curve.

Carrying on the previous example, 50% is the general increase. An individual gets 100% increase – 50% general and 50% exclusive. The general increase(50%) shall give him less than proportional satisfaction, while 50% exclusive/special increase shall give him more than proportionate satisfaction. We can put his satisfaction to around 75% while other in the group experiencing general increase will get less than 50% satisfaction.
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Antriksh