 # per capita income

## Per Capita Income Formula | Step by Step Examples with Calculation Per capita income can be described as an economic barometer which measures the income earned by an individual under a given set of economic unit say geographic region i.e. province, country, city, area, sector, etc.

in a specified period say, during a year usually aiming to determine the average income earned by a person in order to evaluate the standard of living of group of persons living under that geographical region during specified period.

### Per Capita Income Formula

Per Capita Income formula consists mainly of two parts i.e. Total income earned by all individuals and total population. It is calculated by dividing the total income of the area by total population living under that area.

Per Capita Income = Total Income of Area / Total Population

For example, the total income of all the individuals living in Boston is \$80,00,000 and the total population is 1000,

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Per Capita Income = \$80,00,000 / 1,000 = \$8,000

### Explanation

1. Per capita income consists mainly of two parts i.e. Total income earned by all individuals and total population. It is calculated by dividing the total income of the area by total population living under that area.
2. The United States Census Bureau takes the total income for last year only for people above 15 years and above and then calculates the median average of the data.

It is calculated by dividing the total income of the area by its total population.

### Examples of Per Capita Income (with Excel Template)

Let’s see some simple to advanced practical examples to understand it better.

### Example #1

The modern town has a total population of 100 people who are earning \$4,50,000 per year engaged in primary agricultural activities and 5,000 people earning \$35,000 per year engaged in manufacturing activities. You are required to calculate the per capita income of modern town.

Solution.

Per Capita Income = Total Income of Area/Total Population

Calculation of total income of modern town

• = (100 * 4,50,000) + (5,000 * 35,000)
• = \$4,50,00,000 + \$17,50,00,000
• Total Income = \$220,000,000

And, Total population will be

• = 100 + 5000
• Total Population = 5100

Calculation can be done as follows-

### Example #2

Suppose In a city there are 10,000 workers working at different pay scales.

You are required to calculate per capita income

Solution.

• = (500 * \$50,000) + (2,500 * \$30,000) + (2,000 * \$20,000) + (5,000 * \$5,000)
• = \$2,50,00,000 + \$7,50,00,000 + \$4,00,00,000 + \$2,50,00,000
• Total Income = \$16,50,00,000

Calculation of total population

• = 500+2,500+2,000+5,000
• Total Population = 10,000

Per Capita Income will be –

### Example #3

Suppose there are 5 companies in a city. The number of employees and the income of the companies are as follows.

Calculate per capita income of the City.

Solution: To arrive at the per capita income of these companies, we need to perform the necessary calculations shown below.

Calculation of total income

• = (25,000 + 2,00,000 + 80,000 + 50,000 +1,75,000 – 50,000 + 0)
• Total Income = 4,80,000

And, calculate the total population

• = 800+500+100+200+400+500+100
• Total Population = 2,600

Note: We also need to consider losses and zero income population for calculating PCI.

### Calculator

Per Capita Income =
 Total Income of Area = Total Population

### Relevance and Use

• With the help of per capita income, one can get to know an area’s wealth or scarcity of wealth which is very helpful in arriving at important socio-economic decisions. We can also use it to ascertain the rank of countries or areas in ascending or descending order in accordance with their richness and wealth by knowing the average income of per person.
• Per capita financial gain is additionally helpful in assessing an area’s affordability buying power. It is employed in conjunction with knowledge on land costs, for example, to assist in verifying if average homes are reach for the typical average family.
• It is helpful for a businessman or organization for opening his business or store in a particular region since using this formula for ascertaining revenue from the population of the area. The organization may take the decision to open/not to open a store in areas having higher per capita income the company as compared to areas having lower one since it helps to evaluate chances of generating more revenue by selling their goods, as more per capita income more spending power of the town.
• The government may take adequate socio-economic decisions for the development of particular areas PCI

### Conclusion

• Per capita income is the amount of money earned per person in a particular region or geographical area,
• It is used to know the standard of living per person for a population of a region or geographical area.
• It as a metric has limitations it does not take into account inflation, financial gain inequality, poverty, wealth, or savings.
• Helps in making business, socio-economic decisions by private/ government organizations.

This has been a guide to Per Capita Income Formula Definition. Here we discuss the formula for calculation of per capita income along with practical examples and downloadable excel template. You can learn more about financial analysis from the following articles –

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## Difference Between GDP Per Capita and Income Per Capita | Compare the Difference Between Similar Terms The economic status of countries is vital due to a number of reasons, and many methods are used to measure the economic conditions. GDP per capita and income per capita are two such pioneer measures that are partly considered the same. This is due to the fact that GDP can also be used to calculate income per capita.

The key difference between GDP per capita and income per capita is that GDP per capita is the measure of the total output of a country where the Gross Domestic Product (GDP) is divided by the total population in the country whereas income per capita is a measure of income earned per person in a country within a given period of time.

### CONTENTS

1. Overview and Key Difference
2. What is GDP Per Capita
3. What is Income Per Capita
4. Side by Side Comparison – GDP Per Capita vs Income Per Capita in Tabular Form
5. Summary

### What is GDP Per Capita?

GDP per capita is the measure of the total output of a country where the Gross Domestic Product (GDP) is divided by the total population in the country.

GDP per capita is a widely used measure of economic activity and becomes very useful when comparing one country to another. Gross domestic product (GDP) is the monetary value of all goods and services produced in a period (quarterly or yearly).

In GDP, the output is measured as per geographical location of production, mostly in a country. GDP per capita is calculated using the formula given below.

### GDP per Capita = GDP / Population

Figure 01: GDP per capita in different countries

Countries continuously attempt to maintain an increasing GDP per capita since it is a sign of economic productivity. Further, this is used as an indicator of standard of living, where higher GDP per capita indicates a higher standard of living.

However, GDP per capita should not be considered as the sole measure of economic robustness in a country since it is criticized for not taking into account the quality of life; it simply measures the value of goods and services produced. In addition, since this produces an absolute measure, it is heavily affected by the number of population.

An increasing GDP per capita is a phenomenon that all nations thrive to achieve to obtain superior results.

 Rank and Country GDP per Capita (Nominal) in \$ 1.Luxembourg 101,715 2.Switzerland 78,245 3. Norway 73,450 4. Macao SAR 68,401 5. Iceland 67,570

Table 1: Countries with highest GDP per Capita in 2016

### What is Income Per Capita?

Income per capita is a measure of income earned per person in a given area, preferably a country within a given period of time. It is calculated as,

### Income per Capita = Income / Population

In the above formula, income is derived by adding up all incomes received by the production of goods and services in the economy during a year.

Wages and salaries from employment and self-employment, profits from companies, interest to lenders of capital and rents to landowners are considered as income sources.

Alternatively, income per capita is also calculated using GDP, which is the more common method as GDP is considered equal to the total income earned by a country.

Figure 02: Income per Capita

The disposable income per capita, a variation of income per capita, is another widely used economic measure. Individuals and households consume goods and services (necessities) such as food, shelter, transportation, healthcare, and leisure while also saving a portion or funds.

They also undertake investing activities to earn returns. Therefore, disposable income per capita is the amount of net income available to a household or an individual for spending, investing and saving purpose after income taxes are paid. It can be calculated by subtracting income taxes from income.

### What is the Difference Between GDP Per Capita and Income Per Capita?

 GDP per capita is the measure of the total output of a country where the Gross Domestic Product (GDP) is divided by the total population in the country. Income per capita is a measure of income earned per person in a country within a given period of time. Calculation GDP per Capita is calculated as (GDP/Population). Income per Capita is calculated as (Income / Population).

The difference between GDP per capita and income per capita is that GDP per capita is derived by dividing the total population by the GDP while income is divided by the total population to arrive at income per capita.

However, in practice, GDP per capita is commonly used for both measures where GDP and income is considered similar to each other. Furthermore, developed countries typically have a superior GDP per capita and income per capita compared to developing countries.

1. Amadeo, Kimberly. “Why the World’s Largest Economies Aren’t the Richest.” The Balance. N.p., n.d. Web. Available here. 06 July 2017.
2.”List of Countries by Projected GDP per capita.

” List of Countries by Projected GDP per capita 2017 – StatisticsTimes.com. N.p., n.d. Web. Available here. 06 July 2017.
3.”Disposable Income.” Investopedia. N.p., 05 Nov. 2014. Web. Available here.

06 July 2017.

### Image Courtesy:

1. “GDP per capita-worldmap-2006” By me, Bamse – Own work (CC BY-SA 3.0) via Commons Wikimedia
2. “Per capita US income” By CLDunlap – data from Census. gov  (CC BY-SA 3.0) via Commons Wikimedia

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