What is Per capita income?
Per capita is a Latin term which translates to “by head”. Per capita income is the income earned by every resident of the country or a geographical region. Per capita income is an economical indicator which helps us know the standard of living or the quality of life in a region. It helps us understand the amount of economical stress the residents might be under or what the economical status of a country is. Every child, infant, man or woman is accounted for calculating the per capita income of a country.
Other similar parameters include the household income, which includes every person living in the house or family income which includes every member of the family. Per capita income helps determine if the real estate rates in a region are affordable or not.
In areas with high per capita income, businesses have a chance to earn more and get more profits.
Per capita income cannot be an accurate representation of the state of living in the country because of limitations like inflation, poverty, etc. Many things must be understood about per capita income before making any decisions based on this parameter.
Per Capita Income: Usage
Per capita income is also useful due to the following parameters that it helps know about-
Gross Domestic Product Per Capita
This parameter is calculated by dividing the Gross Domestic Product of the country by the population. It helps to know the economic output of a country, thus determining the pace of progress of the nation.
Gross National Income per Capita
The basic concept stays the same as the parameters we discussed till now. The only difference here is, that the income brought into the country by NRIs is also included in this calculation. Thus, helping us know the progress of the nation on the global front.
Calculation of Per Capita income
Dividing the total income of the country with the total population of the country will give the per capita income of the country.
This helps you know how much a resident of the country can spend on an average and thus, helps you know the standard of living in the country.
Per capita income = Country’s national income/Total population
Per capita income: Disadvantages
- It does not account for inequality amongst the population.
- It does not reflect inflation, poverty, income disparity or savings and wealth of a country.
- Children are also included in the calculation despite the fact that they do not earn and have no contribution to the income. This makes the per capita income a very unreliable marker to comment on the progress and the quality of life in a country.
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