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In: Economics

Question 1 (25 marks) A measure of average annual income in a country. GDP per capita...

Question 1 A measure of average annual income in a country.

GDP per capita as a measure of material wellbeing is a widely used summary measure of

incomes in a country. It is calculated by dividing Gross Domestic Product (GDP)—the total

value of all the goods and services produced in a country in a given period, such as a year—by

the population of the country. GDP per capita is therefore a measure of average annual income

in a country.

• Discuss the usefulness and limitations of GDP per capita as a measure of material

wellbeing.

• Based on the arguments in the below articles, do you think GDP per capita is an

appropriate measure of both material wellbeing and overall wellbeing? Why or why not?

Refer to the following articles to help you to answer the questions:

1. ‘The Economics of Well-being’ in the Harvard Business Review

2. ‘Statistical Insights: What does GDP per capita tell us about households’ material

well-being?’ in the OECD Insights.

Expert Solution

Answer - GDP measures the final value of goods and services produced in the economy. It is the measure of the overall income of the economy. GDP per capita is the average income of every household in the country. It is calculated by GDP / Total population.

GDP measures the final value of goods and services for those only which are available in the market for sale and purchase. It is a measure of material well being and takes the monetary value of final goods and services into consideration.

It does not measure the goods and services provided in household , or outside the market. Many human factors such as productivity , efficiency , education level , health status , life expectancy are not considered in calculation of GDP per capita. Envionmental factors such as pollution is also not covered up , which adds up to the fact that GDP per capita is not an accurate measure of overall well being of population , but it is only a measure of material well being which takes into consideration only the monetary values of goods and services.

Rahul Sunny answered 1 year ago

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