Per capita is a term you’ll hear mentioned frequently in economics reports, particularly in relation to GDP and income. What does per capita mean and how does it apply to everyday economic theory? We’ll explore all the meanings of this Latin phrase below.
Definition of per capita
The per capita meaning translates literally as “by the head,” but it’s used to mean “per person.” In economics, business, or statistics, per capita is used to report average figures per person. For example, it’s often used to compare economic indicators like gross domestic product (GDP) between two countries with different population sizes. Per capita offers a way to compare numerical averages fairly on an apples-to-apples basis.
This term is also used in the legal industry as well, but the per capita meaning differs slightly. In law terms, per capita means dividing an estate equally between all its living beneficiaries. If you divide the estate between different family branches, rather than individuals, this is called per stirpes.
How to calculate per capita?
The per capita formula is straightforward no matter which statistical measurement you’re trying to break down.
Per capita formula:
Measurement per capita = Measurement / Population
Here’s an example of how to calculate per capita using this formula:
Imagine that 20 people purchase 200 pencils.
200 (measurement) / 20 (population = 10
In other words, there are 10 pencils per capita.
For measurements with a much higher volume, you can report per capita as per 100,000 people. For example, we can see this in action when measuring disease prevalence. You would report the number of flu cases per 100,000 people, rather than per capita because the numbers would be difficult to measure otherwise.
Applications of the per capita meaning
In addition to the examples above, here are two of the main applications of per capita in economics.
1. Gross domestic product (GDP) per capita
GDP measures a country’s economic output, closely tied to aggregate demand. Yet it’s difficult to compare like-for-like GDP between countries with wildly differing populations. By using GDP per capita, or economic output per person, you can better compare the economies of different countries. This figure is typically measured for a quarter or full year. Real GDP per capita is a similar measurement, but it takes away the impact of price changes to show economic output over time.
2. Gross national income (GNI) per capita
Another common use of the per capita formula is in calculating GNI. To figure out gross national income per capita, you must add together all income earned by a country’s population. This includes those both residing in and out of the country, as well as interest and dividends earned abroad. GNI per capita differs from U.S. income per capita, which doesn’t include business income.
Per capita vs median
Per capita offers a way to compare measurements, but median numbers are also used for averages. A median figure represents the middle number in any list. For example, the median income of U.S. residents would be the exact middle, with half of residents earning income above the median and half earning income below it.
Median can sometimes be a more accurate representation for metrics like income because it eliminates statistical outliers. While per capita includes all residents of a country, including retired individuals and children, median income only looks at those earning income. Per capita can hide income inequality by averaging out all the numbers together.
The bottom line
When comparing indicators like income and GDP, the per capita measurement provides a useful way to assess economic output and living standards. However, it only offers a single view which is why it’s also helpful to use averaging measures like the median at the same time. The best assessment of a country’s economy takes multiple indicators and measurements into account.
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