Per Capita Income/GNP

National Income is meant the value of outputs produced within a year. Income per capita is simply the National Income divided by the population of the country in a year.

Income Per Capita = National Income/Population

It shows the standard of living a country can afford for its people. The level of income per capita is determined by the size of a country’s population. The higher is the rate of growth of population, the lower is the rate of growth of income per capita.

Per capita income is a theoretical rather than a factual concept. It shows what the share of each individual’s National Income would be if all citizens were treated as equal. In a real world situation, there exists considerable inequality in the distribution of income especially in the third world countries.

National Income and Standards of Living

Standard of living refers to the quantity of goods and services enjoyed by a person. These goods may be provided publicly, such as in the case of health care or education or they may be acquired by direct purchase. It also includes the less easily quantifiable aspects of living such as terms and conditions of employment and general living environment.

National Income figures can be used to measure the standard of living at a particular point of time and over time. This is done by working out the per capita income of the country. By per capita income we mean: the value of goods and services received by the average man. Per capita income is obtained by dividing the National Income by the Total population. If the per capita income is high, it can be deduced that the standard of living is high.

Per Capita Income and International Comparisons

Per capita income figures can also be used to compare the standards of living of different countries. Thus if the per capita income of one country is higher than that of another country, the living standard in the first country can be said to be higher. Such comparisons are made by aid giving international agencies like the United Nations and they indicate the relevant aid requirements of different countries.

But there are major problems in using real income per head (per capita income) to measure the standard of living in different countries. First there is the whole set of statistical problems and, secondly, there are a number of difficult conceptual problems or problems of interpretation.

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