Question

GDP is often used as a measure of well-being. Is it a reasonable measure of well-being? If so, why does Norway with its high standard of living have a relatively low GDP? Why do India and China, with their relatively low standards of living have some of the highest GDP in the world?

Answer 1

It is not the GDP that exactly affects the standard of living, but it is GDP Per Capita which has got a relation with standard of living.GDP measures the total output of an entire country(economy),while GDP Per Capita is calculated by dividing total GDP by a country's population.

Standard of living is a complex topic and there is no particular indicator to measure. It comprises of Human Development Index(HDI),life expectancy, poverty reduction, technology,infrastructure etc. GDP is divided by population to determine personal income, adjusted for inflation with real GDP and adjusted for purchasing power parity to control for the impacts of regional price disparities. Real per capita GDP adjusted for purchasing power parity is a heavily refined statistic to measure true income, which is an important element of well being.

Suppose the real GDP of a country (higher in population) is $ 2.0 trillionand the size of population is 1 billion than the real GDP per capita is $ 2000. Similarly a country of 8 million people (smaller in population) with real GDP of $ 600 billion than the real GDP per capita is $ 75,000.

So, which nation has the higher real GDP per capita? Offcource the land of smaller population. In the land of smaller population, the average person probably has a nicer house and material possessions. Economists would say this : the standard of living is higher in the land of smaller population.

So in the same way China and India having larger population and higher GDP as compared to Norway but standard of living of Norway is much high when we see Norway  real GDP per capita which we can say a real indicator or well being.