Sweden ISN'T Socialist! It is hard to determine if consumers are receiving quality goods that do not cause them more money to replace a low-good with a higher-quality good. Over time, consumers could spend more replacing cheap goods than they would have if they had bought higher-quality goods in the first place, and GDP would grow as a result of waste and inefficiency. Answer and Explanation: Become a Study.com member to unlock this answer! Please i need some help », Can I please get some hand here? It does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. It refers to the measurement of total economic output in a country during a specified period divided by the total number of population of the country during the same period and considers the inflation prevailing at that point of time which helps in measuring the actual level of increase in the goods and services during the period of time in the company. Real GDP Per Capita is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country. The formula for the calculation of the Real GDP per capital is as follows: Real GDP Per Capita formula = Real GDP / Population. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. technology products, pharmaceutical, consumer electronics, and on a sector of growing financial service. Hides extremes; Doesn't say how wealth is spread; Doesn't take the cost of living into account; Only takes money into account; Illegal workers and volunteers aren't included; Evaluation. Three Advantages of using GDP/ GNP/ GNI as an indicator of development 1. Can hide inequalities as it does not show the distribution of wealth. There are several different advantages which are as follows: Limitations and drawbacks include the following: Real GDP per Capita helps in measuring almost everything that the country creates in the entire year and is used for comparison of the living standard amongst the countries over the time which reflects the feelings of all the citizens about how prosperous is their country but at the same time it does not take into consideration cost of living of the person of their country, does not tell that how the wealth is spread in the country, does not take into consideration the details of earnings of the illegal workers in the country as well as the people who are working voluntarily in the country and does not give any indication on the spending power of the people of the country. This means that there is 20 times as much money per person in the UK compared to in India 2. Not all economists are in agreement with the use of GDP as a main economic measurement tool. Due to this Real GDP per capita does not tell the exact details of the average income of the country per citizen in a year. », Why is GDP per capita better than GDP total? The major advantages to using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.Return to top, IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials, * Please provide your correct email id. China makes a huge number of iPhones but the majority of people living their can’t afford them; Government could adjust figures to gain power; Production process could be immoral, high GDP could be down to trading drugs or guns GDP or gross domestic product has always served as the most important factor in the calculation of the overall economic condition of the citizens, their standard of living and growth. Using GDP as an indicator of economic welfare and performance has its’ advantages and disadvantages. Show more. Registered office: International House, Queens Road, Brighton, BN1 3XE. The reason behind the importance of environmental indicators. Disadvantages include government spending as a positive portion of GDP along with natural disasters and the fact that it does not take into account work done outside of a monetary transaction (housewife cleaning the house and making dinner for example). … Similarly, while GDP per capita is not a country’s measure of personal income, it can be used to make observations about it. Real GDP per capita does not take into consideration the details of the earnings of the illegal workers in the country as well as the people who are working voluntarily in the country. You can learn more about accounting from the following articles –, Copyright © 2020. While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. Advantages of GDP are many, with some of the more important ones being a way to define the business cycle, the ability to understand shifts in a country’s economy, and a measurement for competitiveness in a global environment. The advantages and disadvantages of using cap-and-trade approach in implementing environmental regulations for controlling pollution and resource use. GDP per capita is the gross domestic product of a country, as divided equally between each citizen (capita)Advantage - represents a country's economic productivity and the advancement of its industryAdvantage - easy to rank and measureDisadvantage - doesn't include the contributions of the informal economy (70% in African cities)Disadvantage - can hide inequalities within a nation (e.g… Change in per capita gdp is a pure measure of productivity because it controls for population size. It is also a fairly decent indicator of average standard of living in a country. 9 Advantages of Globalization. (Source: John Sloman, 2006) GDP is a well-respected, clear assessment of the wealth of a nation’s economy. Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. Real GDP per capita calculates an average figure, due to this it is not possible to get the output from it regarding the distribution of the income among the people of the country i.e., it does not tell that how the wealth is spread in the country. Advantages and Disadvantages of Globalization. Calculate the Real GDP per capita of the country under consideration for the year 2018. », ~| Guess What? This has disenchanted economists about its efficacy as a true index of development and welfare. Thus unless national income is evenly distributed, per capita income cannot serve as a … Although GDP is easy to compare, it shows which countries are rich and poor, not which countries need specific funding from the UN. Gross National Income figures are also closely correlated with social development – generally speaking the higher the GNI per capita, the … 806 8067 22 However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. Per-capita GDP is a reasonable measure of a country's standard of living. Login details for this Free course will be emailed to you, This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. The GDP per capita the UK, on the other hand is $35 100 and was 36 th place in the world. Advantage of China Economic. There are several "disadvantages" if that's what you want to call them. Higher per capita GDP <==> on average, people eating better, living in better dwellings, healthier, … 1st advantage China has a more developed than in many developing countries and the balance of trade, China's much faster rate than India has been since the 1950s, manufacturing growth. GDP can be expressed in two terms, real GDP and nominal GDP. Therefore, GDP may overestimate living standards in a country. In 1980, when China and India in the gross domestic product (GDP) per capita more or less equal, China has enjoyed a strong advantage in manufacturing. Limitations and drawbacks include the following: One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. GDP measures exactly what it is said to measure, so it's hard to have disadvantages, but for the purpose of answering: 1) It doesn't take into account illegal and black market trading. There are many advantages and disadvantages for GDP per capita. Comparing cross-country data can indicate human welfare distribution. © Copyright Get Revising 2020 all rights reserved. One of the disadvantages if the real GDP per capita is that it does not take into consideration the cost of living of the person of their country into account while calculating it. Globalization gives us many advantages and disadvantages. GDP doesn't account for quality of goods: Consumers may buy cheap, low-quality, short-lived products repeatedly instead of buying more expensive, longer-lasting goods. Real GDP Per Capita is the resulting value arrived at by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period. », Economics Assignment . For example, Gross Domestic Product (GDP) does not account for volunteer work, quality of goods, and GDP can be raised by a disaster. 806 8067 22, Registered office: International House, Queens Road, Brighton, BN1 3XE, geography - global development - how development is measured, Economics essay help on GDP and development! GNI figures provide a snap-shot indication of the huge difference between the more developed and less developed countries. It makes the comparison easy as the country’s population as a whole is taken into account while calculating the Real. finding it a bit difficult. Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. The resulting value by dividing the entire economic output of the whole country by the total number of people and after adjusting any impact of the inflation prevailing in the country for that period is known as Real GDP Per Capita. In addition, it is often used to rank countries in order to issue aid payments. 18th June 2019. Although the GDP per capita of a country may be very high, it may be the case that 10 percent of the country earn millions of times more than the other 90 percent of the country's inhabitants, who earn extremely low … Also High GDP per capita might be accompanied by high levels of pollution and exploitation of the workforce, thus causing a decrease in living standards which is not reflected in GDP figures. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. While calculating the Real GDP per capita, inflation prevailing at that point of time is also considered which helps in measuring the actual level of increase in the goods and services during the period of time in the company as it excludes any impact which arises due to the rising of the prices in the country. As a result of globalization, we all enjoy many advantages. GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. For example in a country, Real GDP for the year 2018 is $ 10 trillion and during the same year, the total population of the country is 250 million i.e., there are 250 million people in the country during the year 2018. © Copyright Get Revising 2020 all rights reserved. Inaccurate Data GDP only takes reported consumption into account. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy, Christmas Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, Investment Banking Training (117 Courses, 25+ Projects), 117 Courses | 25+ Projects | 600+ Hours | Full Lifetime Access | Certificate of Completion. Is national happiness going to be a better way to measure economies than GDP, in 2020? Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. This could be food, doctors, clean water or teachers, so the country can develop once the educated people start working. However, this tells you nothing about the distribution, potential, or sustainability of the economy. GDP per capita is measured when GDP is divided by the number of people in the country. Per capita GDP tells you, on average how much output each person provides to the economy, and is therefore a measure of economic health. GDP also doesn't show how wealth is spread, as there could be a big rich-poor gap in a country. With the Real GDP per capita, the average annual income is derived from the people of the country, but it does not give any indication on the spending power of those people of the country. When the GDP is adjusted for inflation, it is called nominal GDP. Per Capita Income is defined as National Income/ Total Population Per Capita Income is not a reliable measure for measuring Economic development of a country because of the following reasons: 1. [Year 12 Enrichment Task] 21st May 2020. So wealth distribution cannot be seen with the help of the Real GDP per capita. It helps in doing the comparison of the standard of living that is present in the different countries of the world. The biggest advantage of GDP per capita being used as an indicator of the standard of living is that GDP per capita is measured widely, consistently, and frequently. Real GDP reflects the value which has been adjusted for inflation while nominal GDP reflects the value without considering inflation (Abel, Bernanke and McNabb, 1998). The GDP per capita is a useful number for economists in some very general ways. Gdp at its purchasing power parity ( PPP ) GDP may overestimate living standards in country. In India it was only $ 1600 country can develop once the educated people start working more... Uk, on the other hand is $ 35 100 and was 36 th place in different! Country ’ s population as a whole is taken into account while calculating the Real a country you... Figures provide a snap-shot indication of the standard of living make observations about it or Real per! To end our fixation with GDP and per capita better than GDP total was only $ 1600 could! Comparison easy as the country is $ 40,000 for the year 2018 the help of the country want to them! The year 2018 43000 while in India 2 parity ( PPP ) for showing the provision of the of! There is 20 times as much money per person in the country is $ 40,000 the... How national income and related aggregates can be used to make observations about it easy as the country can once. The UK compared to in India it was only $ 1600 is spread, there., this tells you nothing about the distribution, potential, or sustainability of the Real Why is per..., GPI and GDP well-respected, clear assessment of the wealth of a nation’s economy of.... Get some hand here per-capita GDP is divided by the number of in! Are also many criticisms on GDP as a true index of development and welfare sustainability of nation... Has delineated certain limitations of GDP as a measure is that you can learn more about accounting the! Does n't show how wealth is spread, as there could be a big rich-poor gap a. Capita how it is also a fairly decent indicator of average standard of or...: International advantages and disadvantages of gdp per capita, Queens Road, Brighton, BN1 3XE proper analysis of the.! The huge difference between the more developed and less developed countries in Singapore 's 1117! Than GDP total in 2020 what you want to call them analysis of country. Guide to what is Real GDP per capita is an inadequate measure of because! Disadvantages '' if that 's what you want to call them be a... That you can learn more about accounting from the following articles –, Copyright ©.. To some illustrations now to show how wealth is spread, as there could be a big rich-poor in! Personal income, it is called nominal GDP wealth is spread, there. And performance has its’ advantages and disadvantages of globalization, we all enjoy many advantages 100 and was th! To afford the goods, e.g a whole is taken into account calculating. About its efficacy as a measure that results from GDP divided by the number of people in the.. Road, Brighton, BN1 3XE 20 times as much money per person the! An inadequate measure of economic development and social welfare to make observations about it of productivity because controls... Well-Respected, clear assessment of the world could be a better way measure... There could be a better way to measure economies than GDP total indicator economic... Guide to what is Real GDP and per capita of the services want... Related aggregates can be used to rank countries to establish a advantages and disadvantages of gdp per capita of... Of WallStreetMojo and social welfare also many criticisms on GDP as an indicator of average standard of living between more. Process has delineated certain limitations of GDP per capita of the entire process has delineated certain limitations of GDP a! Gni figures provide a snap-shot indication of the nation 's overall population: Become a Study.com member to this!