How is Per Capita Income Calculated?
Per Capita Income can be considered an economic barometer that measures the income earned by a person within a given set of monetary units, such as a geographic region, province, country, city, area, sector, and other various aspects, in a specific period.
It typically seeks to identify the median income money generated by a person to evaluate the standard of living of a group of people living within that geographical region during that specific period.
In this blog, we will examine the definition of Per Capita Income, its formula, and how it is calculated.
What is Per Capita Income?
The money made per person in a country or region is expressed as Per Capita Income.
The average per-person income for an area is calculated using Per Capita Income, which is also used to assess the population's well-being and standard of life.
A country's Per Capita Income is determined by dividing its national income by population.
Formula for Per Capita Income
The entire income made by every person and the whole population makes up the majority of the Per Capita Income calculation.
Therefore, the per capita income formula is first determined by dividing the region's total revenue by its people.
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Per Capita Income = Total Income of Area / Total Population |
How to Calculate Per Capita Income?
The population's overall Income and Size are the two critical components of the formula used to compute per-capita income. Thus, Per Capita Income is calculated by dividing the region's overall income by population.
Let's understand how to find per capita income through an example.
Explanation
Consider a scenario in which a room contains ten people. They are all paid workers for a significant multinational company. Nonetheless, they are paid differently and specialize in other fields.
Suppose the salary received is as follows-
- ₹ 1 lakh
- ₹ 1.2 lakh
- ₹ 2 lakh
- ₹ 80,000
- ₹ 1.2 lakh
- ₹ 2 lakh
- ₹ 1 lakh
- ₹ 1.8 lakh
- ₹ 1.5 lakh
- ₹ 1.5 lakh
The wages are diverse, as you can see. The per capita income might help you better understand the group's revenue. This group's PCI is ₹1.4 lakh.
If we apply this sample to the entire nation, knowing the per capita income might help you understand how much the typical citizen makes.
Application of Formula – Hence, in the case above:
- Total Income of the Population = ₹14 lakh (1 + 1.2 + 2 + 0.8 + 1.2 + 2 + 1 + 1.8 + 1.5 + 1.5)
- Size of the Population = 10
Therefore,
Per Capita Income = ₹14 lakh/10 = ₹1.4 lakh
Let us modify the illustration a little. Let us imagine there are 14 people present, but four are unemployed. Hence, we have the following:
- Total Income of the Population = ₹14 lakh (1 + 1.2 + 2 + 0.8 + 1.2 + 2 + 1 + 1.8 + 1.5 + 1.5 + 0 + 0 + 0 + 0)
- Size of the Population = 14
Therefore,
Per Capita Income = ₹14 lakh/14 = ₹1 lakh
Lastly, there will always be unemployed individuals in a nation. Therefore, it is crucial to account for every member of the population when computing the PCI.
Conclusion
A person's average income in a specific location is Per Capita Income.
This represents the average annual income and not a measure of an individual's wealth as a whole. Instead, PCI is calculated by dividing the population's total revenue by its size, which is straightforward.
It is one of the most often used statistical indicators to determine the population's rough living level.
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Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.