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 quality of life of the population in that area. Let us understand the definition of per capita income, including the method of calculation and the implications.

What is Per capita income?

Per capita income represents the average income earned by an individual in a given area or sector. This is a way of calculating the average income of each person in a specific area. This statistic is also used to measure the economic well-being and quality of life of the inhabitants of an area. The per capita income of a country is calculated by dividing the total national income by its population.

The calculation behind the per capita income

The main component of the calculation of per capita income is the comprehensive income earned by all individuals and the entire population. So, this is primarily calculated as the total income of an area divided by its population.

Per capita income = total income of the area / total population

Per capita income is calculated

The main components of the formula for determining per capita income are the total income of the population and the size of the total population. So, to calculate the per capita income, you divide the total income of a particular area by its population.

For example, imagine a group of five people who work for a major international corporation. Their personal income varies according to their roles: Suppose their income is ₹1,200, ₹1,800, ₹1,000, ₹700, ₹300, and so on. Everyone's salary is different. However, the per capita income helps to provide an average income for this group. In this case, the PCI will be 1000.

Total income of the population = ₹5,000

The size of the population = 5

So, per capita income = 5000/5 = ₹1000

Let's change this situation slightly: imagine that there are 10 people in total, but five are unemployed.

Total income of the population = ₹5000

The size of the population = 10

So, per capita income = 5,000/10 = ₹500

This example can be used to bring to mind 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 an individual in a particular area. It indicates the average annual income and does not represent the total wealth of an individual. Rather, it is simply the ratio between the total income of a population and its size.

It serves as one of the most commonly used statistical measures to estimate the quality of life of a population.

It is relatively simple to understand and calculate per capita income. It is a powerful tool that provides significant insight into the economic health of a population.