What does "per capita income" refer to in economic terms?
- AOption (a)
Average family income
- BOption (b)
Total income of a country
- COption (c)
Total income divided by population
- DOption (d)
Government income
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Correct answer
Total income divided by population
Why this answer is correct
The correct answer is Total income divided by population.
Key Points
- Per Capita Income (PCI), also known as average income, is a fundamental economic metric used to measure the amount of money earned per person in a specific geographic area like a nation or city.
- It is calculated by taking the Total National Income of a country (often measured as Gross National Income or Net National Income) and dividing it by its Total Population.
- The concept is vital for determining the Standard of Living and the quality of life of the people in a country, as it helps identify the average individual's purchasing power.
- The World Bank utilizes this metric in its annual World Development Report to categorize countries into different economic groups such as Low-income, Lower-middle income, Upper-middle income, and High-income countries.
- In international comparisons, Per Capita Income is often adjusted for Purchasing Power Parity (PPP) to account for the differences in the cost of living and inflation rates across different nations.
Additional Information
- Average family income:
- Refers to the Household Income, which is the combined gross income of all members of a household aged 15 and older. While relevant for micro-economic analysis, it does not represent the national average per person.
- Total income of a country:
- Commonly referred to as the Gross Domestic Product (GDP) or National Income. It represents the total value of all finished goods and services produced within a country's borders in a specific time period but does not account for the size of the population.
- Government income:
- Known as Public Revenue, this consists of money received by the government from various sources including Direct Taxes, Indirect Taxes (like GST), fines, fees, and dividends from Public Sector Undertakings (PSUs). It is used to fund public expenditure and Infrastructure Development.