Per Capita Income

Introduction

• Per capita Income (PCI) is a measure of average income earned per person in a given area (City, region, country, etc.) in a specified time period, generally a year. 
• It is calculated by dividing the total income by its total population.

PCI = Total  Income / Population 

Significance of PCI

• PCI is used to evaluate the standard of living and quality of life of the population.
• A higher per capita income represents higher purchasing power. 
• PCI is a measurement of prosperity for a region.

Nominal PCI & Real PCI

• Nominal PCI: Nominal Per Capita Income is the income per capita at the current year price. It is not inflation adjusted. It is calculated by dividing nominal income or nominal GDP by the population of a country.

Nominal PCI = Nominal GDP / Population

• Real PCI: Real Per Capita income is calculated by adjusting inflation Nominal one. It is calculated by dividing real income or Real GDP by the population of a country.

Real PCI = Real GDP / Population

GDP Per Capita

• It is a measure of a country’s economic output that accounts for its number of people. 
• It divides the country’s gross domestic product by its total population and it is the best measurement of a country’s standard of living.

GDP Per Capita = GDP / Total Population

Important Points

• Small, rich countries, and more developed industrial countries, tend to have the highest per capita GDP.
• A growing population will mean lower per capita GDP if total GDP growth does not keep pace with the population.
• As developing nations grow economically, their per capita GDP tends to converge with more developed nations.
• Economic growth is measured on the basis of the expansion of GDP. However, there are instances when the rate of population growth is higher than the rate of increase in GDP. In such instances, GDP increases while per capita income decreases. Therefore, per capita income is considered a better indicator of economic growth