Per Capita Income (PCI) is a widely accepted financial metric that provides insight into the average income of an individual in a particular geographic area. It gives an idea of the economic health and standard of living of the population of that area. Understand the definition of per capita income, calculation method and implications.
What is per capita income?
Per capita income represents the average income earned by an individual in a given area or sector. It is a way of calculating the average income per person in a specific area. This statistic is also used to measure the economic well-being and quality of life of the residents of an area. A country's per capita income is calculated by dividing the total national income by its population.
The figure behind per capita income
Aggregate income earned by all individuals and the population as a whole is the main component of per capita income calculation. Therefore, it is primarily calculated by dividing the total income of an area by its population.
പ്രതിശീർഷ വരുമാനം = പ്രദേശത്തിൻ്റെ മൊത്തം വരുമാനം / മൊത്തം ജനസംഖ്യ
Calculating per capita income
The main factors in the formula for determining per capita income are the total income of the population and the size of the total population. So, to calculate per capita income, you divide the total income of a particular area by its population.
For example, imagine a group of five individuals working for a major international corporation. Their individual income varies according to their roles: Suppose their income is ₹1,200, ₹1,800, ₹1,000, ₹700, ₹300, etc. Salary varies for everyone. However, per capita income helps provide average income for this group. In this case, PCI would be 1000.
Total income of the population = ₹5,000
Population size = 5
Hence, Per Capita Income = 5000/5 = ₹1000
Let's change this scenario slightly: Imagine there are 10 people in total, but five are unemployed.
Total income of population = ₹5000
Population size = 10
So, per capita income = 5,000/10 = ₹500
This example can be used to understand the importance of considering every member of the population, including the unemployed, in PCI calculations.
Per capita income is an economic indicator of the average income of a person in a particular region. It refers to the average annual income and does not represent the total wealth of an individual. Rather, it is simply the ratio of a population's total income to its size.
It serves as one of the most commonly used statistical measures to estimate the standard of living of a population.
Per capita income is relatively simple to understand and calculate. It is a powerful tool that provides significant insight into the financial health of a population.
