Per capita income or income per person is the numerical quotient of national income divided by population, in monetary terms. It is a measure of all sources of income in an economic aggregate, such as a country or city. It does not measure income distribution or wealth.
Per capita income as a measure of prosperity
Per capita income has several weaknesses as a measurement:
- Economic activity that does not result in monetary income, such as services provided within the family, or for barter, are usually not counted. The importance of these services varies widely between different economies , both between countries and among different groups within a country.
- If the distribution of income within a country is skewed, a small wealthy class can increase per capita income far above that of the majority of the population.
- International comparisons can be distorted by skewed exchange rates. The same good, e.g., one pound of rice may sell for a much different price in two countries. If goods cost twice as much in country A and A has twice the per capita income, the countries may be equally prosperous despite the income figures.
Median income is a more widely accepted measure of prosperity, because it is not biased by wealthy outliers.