Per Capita Income As A Measure of Prosperity
Per capita income is often used as average income, 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 or United States dollar, and is useful because it is widely known, easily calculated from readily-available GDP and population estimates, and produces a useful statistic for comparison.
Per capita income has several weaknesses as a measurement of prosperity:
- Comparisons of per capita income over time need to take into account changes in prices. Without using measures of income adjusted for inflation, 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 more accurately reflects the differences in what people are actually able to buy with their money.
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