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Per capita income

Per capita income

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Per capita income or income per person is a measure of mean
Mean
In statistics, mean has two related meanings:* the arithmetic mean .* the expected value of a random variable, which is also called the population mean....

 income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate (such as GDP or Gross National Income
Gross National Income
The GNI consists of: the personal consumption expenditures, the gross private investment, the government consumption expenditures, the net income from assets abroad , and the gross exports of goods and services, after deducting two components: the gross imports of goods and services, and the...

) and dividing it by the total population. It does not attempt to reflect the distribution of income or wealth.

Per capita income as a measure of prosperity


Per capita income is often used as a measure of the wealth of the population of a nation, particularly in comparison to other nations. It is usually expressed in terms of a commonly-used international currency such as the Euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

 or United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

, and is useful because it is widely known, easily calculated from readily-available GDP and population estimates and produces a straightforward statistic for comparison.

Per capita income has several weaknesses as a measurement of prosperity:
  • As it is a mean
    Mean
    In statistics, mean has two related meanings:* the arithmetic mean .* the expected value of a random variable, which is also called the population mean....

     value, it does not reflect income distribution. If the distribution of income within a country is skewed, a small wealthy class can increase per capita income far above that of the majority of the population. In this respect Median income is a more useful measure of prosperity than per capita income, because it is less influenced by the outliers.

  • Economic activity that does not result in monetary income, such as services provided within the family, or for barter, are usually not counted. The importance of these services varies widely among different economies.

  • Comparisons of per capita income over time need to take into account changes in prices. Without using measures of income adjusted for inflation
    Inflation
    In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

    , they will tend to overstate the effects of economic growth.

  • International comparisons can be distorted by differences in the costs of living between countries that aren't reflected in exchange rates. Where the objective of the comparison is to look at differences in living standards between countries, using a measure of per capita income adjusted for differences in purchasing power parity
    Purchasing power parity
    In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...

     more accurately reflects the differences in what people are actually able to buy with their incomes.

See also