definition of per capita income

The per capita income or per capita income, as it is also called, is the concept that calls that economic variable that indicates the relationship between the Gross Domestic Product (GDP) and the number of inhabitants of a nation. At the behest of the macroeconomy, the GDP is a measure that expresses the monetary value of final demand for the production of goods and services, in a region or country, during a specified period of time, which is normally one year. It should be noted that GDP is used to have a notion of the measure of material well-being present in a society and that always measures final production.

Meanwhile, to know that relationship and obtain that number it is necessary that divide GDP by the amount of population.

So, as we mentioned above, per capita income is an economic indicator that allows us to know through its value the economic wealth of a nation. Because this indicator is closely linked to the quality of life of the people who live in a country. Now, this is so when income does not exceed a certain value, whereas for those nations that have a higher income, the relationship between quality of life and income is not so tight and corresponding.

With an example we will see it more clearly, in the really poor countries, a general increase in their GDP will imply an increase in the social welfare of their citizens, as long as the income distribution is not so unequal, meanwhile, in the countries that have from a high income there will be less correspondence with regard to health and education indicators, among others, and that is why it is said that GDP may have limited utility in terms of measuring this well-being.

Then, among the main criticisms made of per capita income as an indicator of social welfare in a country are: that it ignores the differences in income that exist, because dividing the total GDP by the number of inhabitants will be attributed the same income level for all when not; it does not consider external negative questions, for example if the natural resources of a place are diminished or consumed; not always all production will increase well-being, because some expenses that are counted in GDP do not have a consumption purpose but rather their mission is to protect against possible negative scenarios.

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