Definition of per capita income

The entry per capita or income per capita, 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 request 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 GDP is divided 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, while for those nations who have a higher income, the relationship between quality of life and income is not so tight and correspondent.

With an example we will see it more clearly, in 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 countries with a high income there will be less correspondence with respect to to the indicators health, education, 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 they exist, because dividing the total of the GDP by the number of inhabitants will be attributing the same level of income to all when this is not the case; does not consider external negative issues, for example if the natural resources from a place they go down or were consumed; not always all production will increase welfare, because some expenses that are accounted for in GDP do not have a consumption purpose but rather their mission is to protect from possible negative scenarios.