Per capita income
National income divided by total population — a better gauge of living standards than national income alone, because it adjusts for how many people that income is shared across.
In plain language
A country's total income can grow every year and its people can still be getting poorer, on average, if the population is growing even faster.
Per capita income fixes that blind spot. It divides national income by the number of people in the country, giving the average income per person rather than the total for the whole economy.
How it works
The workbook: per capita income is "National Income/total population," and "Per Capita Income (not the National Income) is [the] better measure of standard of living in a country, because, while National Income may increase, faster increase in population may reduce the per capita income."
The direction of the comparison matters: the workbook is explicit that a higher per capita income means a higher standard of living. If national income grows 6% in a year but population grows 8%, per capita income falls even though the country's total income rose — it is per capita income, not the national income total, that analysts should read for this purpose.
A worked example
Illustrative. A country's national income is Rs 200 lakh crore with a population of 140 crore.
Per capita income = 200 lakh crore ÷ 140 crore = Rs 1,42,857
The next year, national income grows 6%, to Rs 212 lakh crore, but population also grows 2%, to 142.8 crore.
New per capita income = 212 lakh crore ÷ 142.8 crore ≈ Rs 1,48,460
Per capita income rose only about 3.9%, well below the 6% growth in national income — because a larger population is now sharing that bigger pie.
Why NISM asks about it
Chapter 5 (Economic Analysis), in the discussion of the uses of national income statistics, sets out this exact relationship. Expect a question testing that per capita income, not national income, is used to compare living standards, or a computation combining income growth with population growth.
Common exam traps
- Rising national income does not guarantee rising per capita income. If population grows faster than income, per capita income can fall even while the country's total income rises — a direct trap in a "standard of living" question.
Check yourself
1.A country's national income grows 6% in a year while its population grows 8%. What can be concluded about the standard of living?
- a)It improved, because national income rose
- b)It declined, because per capita income fell
- c)It was unchanged, since both grew
- d)Nothing can be said without the inflation rate
Show the answer
Answer: (b) It declined, because per capita income fell
Per capita income = national income ÷ population. With income up 6% and population up 8%, the ratio is 1.06 ÷ 1.08 = 0.9815 — a fall of about 1.85%.
The workbook makes this point directly: "Per Capita Income (not the National Income) is better measure of standard of living in a country, because, while National Income may increase, faster increase in population may reduce the per capita income; which means standard of living in the country has gone down."
Option A is the whole trap — a rising national income headline hides a falling per capita figure. Option C confuses "both grew" with "both grew equally". Option D sounds cautious and analytical, but the workbook frames standard of living around per capita income, and the population and income growth rates alone settle the direction.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Gross Domestic ProductThe market value of all final goods and services produced inside a country's borders in a period, whoever owns the producer — the standard measure of the size and growth of an economy.
- Gross National ProductThe market value of goods and services produced by a country's residents wherever in the world they are — GDP measured by nationality rather than by geography.
- Net Factor Income from AbroadFactor income earned by a country's residents abroad minus factor income earned inside the country by non-residents — the single adjustment that converts GDP into GNP.
- Final goodsGoods consumed by participants in the economy rather than used up in further production — only these are counted when GDP is measured by the product method, so nothing is counted twice.
- National savingThe savings of an entire economy, arrived at by adding the savings of its three constituents — personal savings, corporate savings and public savings.