Limitations of using per capita income in measuring standards of Living/reasons why high income per capita may not necessarily imply high standard of living
- Per capita income does not reveal the nature of distribution of income. Per capita income figures may be high when there is high degree of income inequality in the economy. The high income figures may be as a result of a few rich individuals yet the majority of the population is poor.
- High per capita income may be, as a result of increase in prices of goods and services in the country due to inflation. This may, not necessarily show an improvement in standards of living.
- Per capita income does not consider the amount of leisure available to citizens in the country. Output may increase as the result of over working labour which does not reflect a high standard of-living.
- Per capita income does not show the degree of freedom, security and self-esteem enjoyed by the citizens. Per capita income figures may be high when the majority of the population have no freedom and have low esteem.
- Per capita income does not reflect the level of unemployment in the country. The per capita figures Play be high as a result of using capital intensive techniques of production yet the majority of the people have no jobs.
- The county’s per capita income may increase as a result of producing capital goods at the expense of consumer goods which do not improve directly the standards of living of the citizens.
- Per capita income does not show the quality of goods produced in the economy. The per capita income figures may be high yet the quality of the products produced in the country is poor.
- Per capita income does not consider other factors which contribute to the standards of living. For example per capita income may increase when there is high level of pollution; accidents and political wars in the country.
- Per capita income may increase as a result of underestimating population figures. This does not necessarily imply high standards of living.
- Per capita income may be low due to the presence of a large subsistence sector. Output from the subsistence sector may not be included when estimating national income yet goods and services produced under this sector contribute to the welfare of the
CATEGORIES Economics
TAGS Dr. Bbosa Science
Very helpful, thank you