How does per Ca pita Income hide the disparities between nations?

Answer 1

its averaged out.. 10 rich and 1million poor = 1,000,010 seemingly well off people

Answer 2

Per capita income does not hide anything. Between two nation , the one with higher per capita income is the richer nation. However per capita income does not indicate the disparities in income among the people in a country. Two nations may have the same level of per capita national income of say $ 500-$700 like India/ China, but China may not have 23% of population below $1 a day income per head as India may be having. On the other hand, the US may have very rich and poor people. But the poorest person may be earning $10,000 a year while the poorest Indian may be earning $175 a year. So per capita income at the lowest income level may show more clearly as to which nations have which level of poor people.

Answer 3

Non market activities also contribute to production of good and services. A poor country may have many subsistence farmers, who's cash income is not enough to provide food for his family, yet they are not starving. Countries where women stay home and care for children will not have the service of child care counted as part of GDP, but if mother work child care is is hired it is part of GDP. Many economist believe that the lower GDP per capita in Europe is due to the high tax rates causing people to shift part of their productive activities away from the market to private activities where they are not taxed.
When comparing countries the local currencies must be converted to a common measure. If exchange rates are used distortions are introduced and the measure fluctuates as the exchange rates respond to capital and trade flows, so you could think there is fluctuation in the economies where in fact nothing is changing. The cost of living between countries vary even more that they do for different geographic locations within a country, which unless taken into account can also lead to false conclusions.

Answer 4

Per Capita Income does not take into account the purchasing power of that income.

For example - Malawi is an extremely poor country with a per capita income of approx $300 per annum. Thailand is a middle income country with a per capita income of approx $6000. The US is a high income country with a per capita income of just under $40,000. (all measured in USD).
So it would seem that the US is 6.7 times as rich as Thailand which in turn is 20 times as rich as Malawi.
But it costs a lot less to buy most things (from a bag of rice, to an hour of an attorney's time) in Malawi than in the US. So we take this cost of living into account by measuring the purchasing power of that money.
This gives us a new figure whereby we measure GDP per capita with Purchasing Power Parity. This will give us a better indication of the relative incomes of most people. Usually we will see this bridge the gap somewhat as generally goods and services cost less in poor countries than in rich ones. Malawi will still be poorer than Thailand and Thailand poorer than the US, but the gap will be far less.

Answer 5

The per capita income is misleading because tiny countries (Luxumberg, Monaco, etc) have tiny populations and are very wealthy creating a very large per capita income. Much large countries with higher populations can have tremendously higher GDPs, with lower per capita income because of the vast number of people living in poverty. I hope this answers your question.