The term **_per capita _**originates from Latin and translates to **"per person"**. A **per capita measure**: 1. Calculates the **average** **value** of a metric (such as **GDP**, **GNI**, **income**, or **expenditure**) for each individual in a country. 2. Allows to make comparison accounting for **different** **population** **sizes** across countries. 3. Allows accurate comparisons over time that account for **population** **growth**. **GDP per capita** is calculated as: $$\text{GDP per capita} = \frac{\text{Total GDP}}{\text{Population}}$$ Similarly, **GNI per capita** is calculated as: $$\text{GNI per capita} = \frac{\text{Total GNI}}{\text{Population}}$$ [{"_key":"f448619c10d0","_type":"block","asset":null,"children":[{"_key":"dce5f10279d0","_type":"span","marks":[],"text":"Utilising per capita values to make comparison across countries"}],"markDefs":[],"style":"h4"},{"_key":"e65bbb74ebf1","_type":"block","asset":null,"children":[{"_key":"ca708540a2a80","_type":"span","marks":["strong"],"text":"Total"},{"_key":"b69ff0e4a50c","_type":"span","marks":[],"text":" "},{"_key":"c9316e374f7c","_type":"span","marks":["strong"],"text":"GDP"},{"_key":"ef9c7273e44d","_type":"span","marks":[],"text":" alone does not give a complete picture of "},{"_key":"f401e2731116","_type":"span","marks":["strong"],"text":"economic"},{"_key":"e610eb5b554b","_type":"span","marks":[],"text":" "},{"_key":"3e0bd6f04b71","_type":"span","marks":["strong"],"text":"performance"},{"_key":"e1f3f551f816","_type":"span","marks":[],"text":" or living standards when "},{"_key":"11094e299491","_type":"span","marks":["strong"],"text":"populations"},{"_key":"b2276a2a8d19","_type":"span","marks":[],"text":" "},{"_key":"abefdab28433","_type":"span","marks":["strong"],"text":"vary"},{"_key":"dc692dd3fff1","_type":"span","marks":[],"text":". For example:"}],"markDefs":[],"style":"normal"},{"_key":"fcadc6353d06","_type":"block","asset":null,"children":[{"_key":"820ead4085700","_type":"span","marks":["strong"],"text":"Country A"},{"_key":"820ead4085701","_type":"span","marks":[],"text":": "}],"level":1,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"cac6e6c41384","_type":"block","asset":null,"children":[{"_key":"98ce5bf1e385","_type":"span","marks":[],"text":"GDP = €10 billion, "}],"level":2,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"119f03511fc2","_type":"block","asset":null,"children":[{"_key":"7b66bd07db71","_type":"span","marks":[],"text":"Population = 1 million,"}],"level":2,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"93ff8754b93c","_type":"block","asset":null,"children":[{"_key":"1ca2e6c9caea","_type":"span","marks":["strong"],"text":"GDP per capita = €10,000"}],"level":2,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"f459374566a7","_type":"block","asset":null,"children":[{"_key":"b0912a2562d50","_type":"span","marks":["strong"],"text":"Country B"},{"_key":"b0912a2562d51","_type":"span","marks":[],"text":": "}],"level":1,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"a41bdb824932","_type":"block","asset":null,"children":[{"_key":"cb70104a6a8a","_type":"span","marks":[],"text":"GDP = €10 billion, "}],"level":2,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"df863139819d","_type":"block","asset":null,"children":[{"_key":"e174694b2b49","_type":"span","marks":[],"text":"Population = 2 million,"}],"level":2,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"83c6b0a36c34","_type":"block","asset":null,"children":[{"_key":"ab395b8783ee","_type":"span","marks":["strong"],"text":"GDP per capita = €5,000"}],"level":2,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"0bed5425cf25","_type":"block","asset":null,"children":[{"_key":"bffdda26f0f70","_type":"span","marks":[],"text":"While total GDP is the same, "},{"_key":"bffdda26f0f71","_type":"span","marks":["strong"],"text":"Country A’s per capita GDP is double that of Country B"},{"_key":"bffdda26f0f72","_type":"span","marks":[],"text":", highlighting the significant "},{"_key":"819d200f7310","_type":"span","marks":["strong"],"text":"difference"},{"_key":"1061c00aae2e","_type":"span","marks":[],"text":" in "},{"_key":"a48b8a6bfa03","_type":"span","marks":["strong"],"text":"individual"},{"_key":"6b008bea44b7","_type":"span","marks":[],"text":" "},{"_key":"8908799bedf0","_type":"span","marks":["strong"],"text":"economic"},{"_key":"048e729ec142","_type":"span","marks":[],"text":" "},{"_key":"354faee88244","_type":"span","marks":["strong"],"text":"resources"},{"_key":"5dc536971081","_type":"span","marks":[],"text":"."}],"markDefs":[],"style":"normal"}] ## Real GDP/GNI per person (per capita) at purchasing power parity (PPP) [b07c13637f8c] The ability of a **given** **amount** **of** **money** to **buy** goods and services, which depends on the **prices** of those goods and services. A fixed amount of money with higher purchasing power can buy more goods and services than the same amount with lower purchasing power. 1. **Countries**' **economies** have **varying** **purchasing** **powers** because the prices of goods and services differ across nations due to factors like **local** **production** **costs**, **wages**, and **market** **conditions**. 2. For example, $10 USD might buy a full meal in one country but only a coffee in another. 3. Therefore, a **higher** **real** **GDP** **per** **capita** in one country might **not** **reflect** **better** **living** **standards** if its cost of living is very high. 4. To make **meaningful** **comparisons** of GDP per capita across countries, **real** **GDP** must be **adjusted** for **purchasing** **power** **differences**. 5. This **adjustment** of purchasing power is done through the **Purchasing** **Power** **Parities** (**PPP**) **exchange** **rates**. 6. Using PPPs ensures that **GDP** and **GNI** reflect the **real** **value** of goods and services that people in **each** **country** can afford, regardless of local prices. Special exchange rates designed that equal the purchasing power of different currencies to that of 1 US dollar. ### Real GDP/GNI per capita at PPP formula [ab73c173b591] $$\text{Real GDP/GNI Per Capita at PPP} = \frac{\text{Real GDP or GNI at PPP}}{\text{Population}}$$ [{"_key":"5d09a522b779","_type":"block","asset":null,"children":[{"_key":"b9c253ea7b25","_type":"span","marks":[],"text":"Calculating the real GDP per capita at PPP of an economy"}],"markDefs":[],"style":"h3"},{"_key":"ef616d0cc9d2","_type":"block","asset":null,"children":[{"_key":"5819db4cf4fd0","_type":"span","marks":[],"text":"Suppose an economy, Econland, has:"}],"markDefs":[],"style":"normal"},{"_key":"4b0ccda9d9fe","_type":"block","asset":null,"children":[{"_key":"d22bacdb81bb0","_type":"span","marks":[],"text":"A nominal GDP of $2 trillion,"}],"level":1,"listItem":"number","markDefs":[],"style":"normal"},{"_key":"a6559031d7fa","_type":"block","asset":null,"children":[{"_key":"833cbf37ff5c0","_type":"span","marks":[],"text":"A population of 500 million,"}],"level":1,"listItem":"number","markDefs":[],"style":"normal"},{"_key":"8d98bda4950a","_type":"block","asset":null,"children":[{"_key":"434f89c418b80","_type":"span","marks":[],"text":"A PPP adjustment which doubles ($\\times 2$) the purchasing power of its GDP."}],"level":1,"listItem":"number","markDefs":[],"style":"normal"},{"_key":"50e80e72985b","_type":"block","asset":null,"children":[{"_key":"afd84fa079db0","_type":"span","marks":[],"text":"To calculate its real GDP per capita at PPP to the US Dollar, we:"}],"markDefs":[],"style":"normal"},{"_key":"a908b849fe1a","_type":"block","asset":null,"children":[{"_key":"31865cea27680","_type":"span","marks":[],"text":"Adjust nominal GDP using the PPP exchange rate: "}],"level":1,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"8dc240c6cb4f","_type":"block","asset":null,"children":[{"_key":"78e940600a65","_type":"span","marks":[],"text":"$$\\text{Adjusted GDP at PPP} = 2 \\, \\text{trillion USD} \\times 2 = 4 \\, \\text{trillion USD}$$"}],"markDefs":[],"style":"normal"},{"_key":"5315ab3a5117","_type":"block","asset":null,"children":[{"_key":"3e183fbffed80","_type":"span","marks":[],"text":"Divide by population to calculate per capita GDP at PPP: "}],"level":1,"listItem":"bullet","markDefs":[],"style":"normal"},{"_key":"be06dd2413c7","_type":"block","asset":null,"children":[{"_key":"8ff51208ecde","_type":"span","marks":[],"text":"$$\\text{GDP per capita at PPP} = \\frac{4 \\, \\text{trillion USD}}{500 \\, \\text{million people}} = 8,000 \\, \\text{USD per person}$$"}],"markDefs":[],"style":"normal"},{"_key":"aa9eefd9a763","_type":"block","asset":null,"children":[{"_key":"cda5f93afd000","_type":"span","marks":[],"text":"This $8,000 reflects the real purchasing power per person in Econland, considering local price levels."}],"markDefs":[],"style":"normal"}] [{"_key":"6047ad5a8626","_type":"block","asset":null,"children":[{"_key":"9abee7cda12e","_type":"span","marks":[],"text":"Calculations of real GDP/GNI at PPP are beyond the scope of the IB Economics syllabus. Only an understanding of the concept of PPPs is needed."}],"markDefs":[],"style":"normal"}]