Income per Capita

<Last updated 12.04.2020>

Dear reader,

Hi! If you are interested in Economics, I’ve prepared the below that involves primary economic indicators. You should take a look at this short article in which I explain what is Per Capita Income, also known as income per person.

All should be interested in observing the changes in economic indicators. These indicators a measures/metrics such as

> the National Income. The money value of all the goods and services produced in a country during a financial year.

> the rate with which prices increase. (Inflation).

> the percentage of people who are not working. (Unemployment Rate)

All the above are data, information that is available to anyone for free. They describe the course of the economy and are used to predict its future movements and progress.  All these are macroeconomic data (used to examine the economy as a whole). These data are studied in Macroeconomics.

We are going to examine how production is calculated for a specific period: domestic product, domestic income, domestic expenditure. All important economic indicators such as Gross Domestic Product (GDP), Income Rate, Unemployment Rate, Consumer Price Index (CPI) etc. are changing with time.

The aim of the Statistical Service of Cyprus (CYSTAT) is to provide reliable and up-to-date statistical information. Example screenshot from the Cypriot competent authority’s website below:

Every transaction for exchange/trade reasons has a buyer and a seller. The seller will receive an amount of money, income, and for the buyer, that money is an equal amount of expenditure needed to acquire the goods. It’s an identity that always holds. The buyer is doing an expenditure which is actually income for the other entity.

Per Capita Income is the mean income of the people in 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) and dividing it by the total population.

Per Capita Income = GDP / Population (number of people/ all permanent residents)

This gives us an understanding of how much income each person should have. However distribution of income is totally different, some people are rich and many people are poor in most cases. In addition, since we divide it by the TOTAL Population, we take into account also the people who don’t participate in the production process and should not have income. Since is an average measure, the distribution of income is hidden.

The unequal distribution of household, or individual, income across the various participants in an economy is called Income Inequality.

i.e. GDP = 10,000,000 EUR, Population: 1000  > Income per Capita = 10,000 EUR

> Income Equality Example : 80% of the population earn 80% of Income. (800 people earn 8,000,000 EUR)

> Income Inequality Example: 80% of the population earn only 20% of income. (800 people earn 2,000,000 EUR)

Higher GDP indicates that the country is increasing the amount of production that is taking place in the economy and the citizens have a higher income and hence they are spending more, thus higher standard of living. However, this just tells us how production grew, not if all people are able to satisfy their needs and wants.

“I hope I am clear on this one. If not, contact us on social media and we will do our best to help you.

Thank you for reading my articles and watching my videos.”

Marios Kyriakou