While this approach has advantages, there are also many criticisms on GDP as an indicator of standard of living or welfare. 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. Let us turn to some illustrations now to show how national income and related aggregates can be calculated from given data. Per capita income is an average and this average may not represent the standard of living of the people, if the increased national income goes to the few rich instead of giving to the many poor. 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. The advantages and disadvantages of using cap-and-trade approach in implementing environmental regulations for controlling pollution and resource use. It's my assignment. Using GDP as an indicator of economic welfare and performance has its’ advantages and disadvantages. GDP and GDP Per Capita. 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. The GDP per capita is a useful number for economists in some very general ways. It helps in doing the comparison of the standard of living that is present in the different countries of the world. GDP can be expressed in two terms, real GDP and nominal GDP. So, a major advantage of GDP is that it gives a clear indicator as to how well (or badly) an economy is doing. 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. 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). 18th June 2019. © Copyright Get Revising 2020 all rights reserved. 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. High inflation may be behind a high GDP rate; Country may have high productivity but not able to afford the goods, e.g. Advantages of using GDP/GNP as an indicator: Disadvantages of using GDP/GNP and an indicator: A useful figure for comparing countries. 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. However, proper analysis of the entire process has delineated certain limitations of GDP per Capita in Measuring Growth. GDP is a well-respected, clear assessment of the wealth of a nation’s economy. Three Advantages of using GDP/ GNP/ GNI as an indicator of development 1. When country GDP per capita is calculated, it is done by dividing the nominal or real GDP by the country’s population. So wealth distribution cannot be seen with the help of the Real GDP per capita. Disadvantages. Answer and Explanation: Become a Study.com member to unlock this answer! », ~| Guess What? This has been a guide to what is Real GDP Per Capita and its definition. You can learn more about accounting from the following articles –, Copyright © 2020. Advantages And Disadvantages Of Economy In Singapore's Economy 1117 Words | 5 Pages. © Copyright Get Revising 2020 all rights reserved. 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! 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… 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 … There are many advantages and disadvantages for GDP per capita. Increases inequality: Sometimes spending more on gross national investments (GNI) per capita can hide the widespread inequality within the country. 9 Advantages of Globalization. GDP per capita is often used as an indicator of welfare in an economy. Not all economists are in agreement with the use of GDP as a main economic measurement tool. Show more. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. There are several "disadvantages" if that's what you want to call them. Advantage of China Economic. 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. 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. One can tell from a country's GDP per capita how it performs economically relative to other countries and how it is performing overtime. 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. Here we discuss the formula to calculate Real GDP per capita along with an example, advantages, and disadvantages. Comparing cross-country data can indicate human welfare distribution. In 2016, the GNP per capita in the UK was $43000 while in India it was only $1600. 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. In fact, "standard of living" and "per capita GDP" have come to be virtually synonymous. The main advantages of using GDP as a measure is that you can gauge the overall output of your domestic factories. Is it time to end our fixation with GDP and growth? GDP per capita is a measure that results from GDP divided by the size of the nation's overall population. Get Revising is one of the trading names of The Student Room Group Ltd. Register Number: 04666380 (England and Wales), VAT No. GDP per capita is measured when GDP is divided by the number of people in the country. It is also a fairly decent indicator of average standard of living in a country. 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. It makes the comparison easy as the country’s population as a whole is taken into account while calculating the Real. 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. 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. Per-capita GDP is a reasonable measure of a country's standard of living. The services has been a guide to what is Real GDP per capita is pure. 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