Income per capita refers to the income earned by an individual in a locality. It is used to describe the average living standard in a particular country, state, or city and is considered an indicator of that country’s economic condition. The income per capita figure is the gross income per capita, less the income of government and non-government organizations, divided by the population of a community. This may be defined as the average income of every person living in a certain community. There are three major ways of calculating the income per capita of a community: income per capita formula, rates of return on personal property, and national income tables.
One of the reasons why income per capita income is calculated in such a way is to facilitate comparisons between different countries. For instance, it can be calculated from national income tables to determine how much money a person in China would earn. When comparing between different countries, it is important to consider how much each nation’s per-capita income refers to that of another. People often tend to compare the income per capita of the U.S. with that of China, Japan, or the U.K., ignoring the income of other countries. If we look closely, though, these comparisons do not make sense. A person from China would not earn as much as a person in the United States, and yet they would have the same purchasing power as a person in the U.S., as China has a lower per-capita income than the U.S.
One of the reasons why we can make such a mistake is from the use of national income tables. These are calculated by taking the gross domestic product of all the countries and dividing it by its population. The resulting percentage is then multiplied with the GDP of the first country and the same procedure is applied to the second country. Thus, the real income per capita of Canada (the highest in the table) and the lowest in the table of the U.S. are compared. This will give an idea of what would happen to the economy of both if they were to switch places.
But what if we disregard the differences in GDP? What if we consider the income per capita of each country, without considering the differences in population? Would this still make a fair comparison? We know that the purchasing power of money is directly proportional to its availability.
That means that the larger the population of a country, the lower the incomes are. Thus, the key findings of this report should be adjusted for population size. A higher living standards index, for example, is significant only if it is accompanied by other improvements. More specifically, we recommend using the appropriate macro indicators for a better overall picture.
For the time being, we note that Canada’s real per capita GDP is still much lower than the G7 average. The gap between Canada and the United States (the next highest country) is close to three percent, while China’s index is only slightly higher than the US. For more information on estimates and years of reference, see the bibliography.
A high-income country has a very high level of income disparity. This means that a country’s level of standard of living is moderately high when you compare it with other wealthy countries. On the other hand, a low-income country has a very low level of income equality. The income- inequality ratio is significantly worse in the U.S.A. (the eighth worst in the world). In addition to standard of living, we also consider the level of personal wealth, per Capita, as a factor of income disparity.
Per Capita means the value of a person’s income as compared to his total income. It is an important concept in any economics research. The higher the GDP per capita, the more diverse is the distribution of income. The correlation between levels of personal wealth and GDP per capita is positive and quite substantial. Hence, a country’s level of income can be expected to affect its level of foreign investments, thereby affecting its trade balance.