What does GDP Per capita mean?
GDP and GDP per capita are interlinked, putting a glance on its history how Per capita came from the concept of GDP. The great invention of 20th century GDP that stands for Gross Domestic Product. Taking Gross here a number of total, Domestic means within a boundary of a country and obviously Product what is being produced, it can be goods or services anything with in a certain period of time. It has marked a significant effect to the worldwide. The whole world rely on its methodology. I would not be wrong to tell that the national income of a nation is just like a price tag, stickled to any country.
Eventually the world is progressing, it’s always in evolutionary mode. Great ideas come up with great solution of the problems. GDP attempts to measure huge economic output of a country but sometimes it creates problem like for example, the government is typically in charge of calculating the GDP, assuming that the government has a calculator and at the end of the year, it takes all the facts and figure of all the products and firms in a country and use their handy calculator to add up all the all the products and services sold, in a year. And when they finally hit the equal button they come up with the number that is very big.!!
What to be done after the calculation ?
Let’s take USA GDP. According to the CIA, World Fact Book 2014, is 17.35 trillion dollars. Boom! A very huge number. Similarly China’s GDP which is 18.09 trillion dollars. But don’t you think so we are left with the over whelming figures of these two countries? Well, yes. To figure this out if the GDP is an accurate or adequate indicator of measuring the health of a nation, we come up with another thing called, Per capita GDP.
GDP per capita
GDP per capita an average income/salary a person makes in a country.
Let’s go with this flow that Per Capita just means GDP per person. It takes the total output of a country that is national income/ expenditure and divides it with the number of population in that country. Doing the dividing thing means that we want to see what a single person’s contribution to their country. The per Capita GDP is especially useful when we want to compare one country to another one because it shows the relative performances of the nations. A rise in per capita of any country indicates the growth and pretty much shows the increase in the productivity of them.
Making it more clearly with a simple chocolate cake, what happens if a piece of cake is divided among two people instead of six? The pieces of cake everyone get in their plates, is the per capita, the more bigger are the pieces, indicates the larger size of a cake and this larger size of cake shows the efficient and more productivity. Per capita GDP is directly working for healthy performance of a nation and indirectly working for nation’s standard of living. That’s why it drags the concept of standard of living too.
Standard of living:
Basically it’s the amount of goods and services produced and are available to purchase by a person, family, firm, group or nation. For quality of life, non-material aspects are important such as relationships, emotions, freedom, and satisfaction, but to measure objectively it’s difficult to do. They are other indices that effort to measure a broader definition of quality of life, but they covers all the material standard of living measurement.
Therefore, a good measure and widely used measure of standard of living is GDP per Capita because if a nation is producing a lot it tends to translate that she will be able to pay higher wages. That’s means their citizens can afford more to buy.
Formula for calculating GDP per capita:
Per capita GDP = Gross Domestic Product / Population
How it works:
For Example
US GDP in 2014 is 17.35 trillion dollars, now that US should spread her national income among her population which is 319 million people. As result, its GDP per capita = 17.35/319 = 54,400 dollars only.
China’s GDP is 18.09 trillion dollars, one of the largest in the world and 1.36 billion. As result the per capita GDP comes only 13,200 dollars. (Via CIA World Fact Book’14).
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Five points that makes Per capita important:
• We generally think of GDP, an ultimate indicator to tell the health of an economy but sometimes it lag behind because of its fancy figures which is different from the ground reality.
• Economics is more concerned to its development factors and that concern leads to Per capita indicator as an important one because the primary decider whether a person is poor or rich, is Income. The more a person enjoys higher income, the more he or she will be able to feed his children, educate them in better way, live in secure homes and in general be happier.
• GDP Per capita indicator, tends to tell whether a country’s workforce is less productive or more that is if they are efficiently producing goods or services they desire to consume.
• Per Capita, also let the government to work upon the weak areas that is causing workforce less productive and unhealthy economy.
• Per capita sets a goal or target for a country, to improve their performance in more efficient ways.
As have been discussed above that Per capita GDP helps to tell the actual growth. Let’s have a look on the Worlds GDP ranking of countries by picking up United States as an example. According to IMF World Economic Outlook, USA scored 17,968 billion dollars in the year 2015 and came world’s one of the largest economy. Which is nevertheless a pretty good attempt by her. However, in the second graph when we have divided the national income of USA with its population, we came up with the figure 54,629 dollars as their GDP per individual that contributed to their country. You may have noticed that USA from ranking of first is now on the 10th position. Here lastly, we sum up our concept from this example that Per Capita GDP, is an average GDP that per person with in the boundary of the country have produced goods and services in single year which also refers to be an actual growth.
