Why is GDP per capita a better guide to living standards than total GDP?

It allows for the size of the population, so it shows how much output there is for each person rather than simply how large the economy is.

What does purchasing power parity adjust for when GDP per capita is compared between countries?

It adjusts for differences in the cost of living, so incomes are compared by what they can actually buy rather than by market exchange rates.

Give two reasons GDP per capita can overstate the living standards of a typical citizen.

It is a mean, so an unequal distribution leaves most people below it, and it counts spending that merely repairs damage as output while ignoring unpaid and informal work.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

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Life in a Global Economy

Indicators of growth and development

3 things to know
Papers 2 and 3

Overview

GDP per capita and calculating it, purchasing power parity, why GDP per capita can overstate living standards, adult literacy, health indicators and life expectancy, the three dimensions and range of the Human Development Index with its advantages and gaps, and why investors look beyond income.

What you need to know

Answer each one before you reveal it.

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Key term

What is GDP per capita?

Numbers

Calculate GDP per capita for an economy with GDP of $480 billion and a population of 40 million.

Key term

Why is the adult literacy rate used as a development indicator?

Questions from this subtopic

Each one with the model answer underneath.

1
What is GDP per capita?
Model answer
GDP per capita is a country's gross domestic product divided by its population, giving average output or income per person.
2
Why is GDP per capita a better guide to living standards than total GDP?
Model answer
It allows for the size of the population, so it shows how much output there is for each person rather than simply how large the economy is.
3
Calculate GDP per capita for an economy with GDP of $480 billion and a population of 40 million.
Model answer
GDP per capita is $12,000.
4
What does purchasing power parity adjust for when GDP per capita is compared between countries?
Model answer
It adjusts for differences in the cost of living, so incomes are compared by what they can actually buy rather than by market exchange rates.
5
Give two reasons GDP per capita can overstate the living standards of a typical citizen.
Model answer
It is a mean, so an unequal distribution leaves most people below it, and it counts spending that merely repairs damage as output while ignoring unpaid and informal work.
6
Why is the adult literacy rate used as a development indicator?
Model answer
Literacy shows whether the population has the basic education needed to take skilled work, use technology and obtain information, which income alone does not reveal.

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ABorrowing becomes dearer and saving more rewarding.

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