Economics Tuition – Is real income per capita a good indicator for standard of living?
As discussed in the previous article, the standard of living consists of two components, the tangible and intangible, the material and non-material, the quantitative and the qualitative.
The real GDP per capita is a good indicator to measure the standard of living of a country as it depicts the real purchasing power of the people on an average basis. The money is used to purchase material comforts and well-being that will increase a person’s quality of life. Naturally, the higher the Real Income per Capita, the higher the SOL. The Real Capita per Income is a good indicator compared to simply the GDP of the country as it takes into account how much each person has on average after discounting inflation.
However, real income per capita have its drawbacks. These drawbacks can be seen from the failure to measure the price level which will distort the accuracy in real purchasing power. It is also not accurate as it is hard to measure the accurate change in population which will undermine the use of real GDP per capita income to denote standard of living. Furthermore, the accuracy of national income is also questionable as the poor derivation of the value of national income due to double accounting and unrecorded activities.
To make the comparison of standard of living more reflective, with the use of real per capita, it is vital that we remember to also include the qualitative aspects of SOL such as the Human Development Index (HDI) and Measurement of Economic Welfare (MEW) when talking about indicators of SOL.
By far, economists still prefer to use real per capita income as the economic indicator to measure standard of living but its application is used with consideration its flaws and spectrum of usage.
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