Per capita income to compare standard of living, Managerial Economics

PROBLEMS OF USING PER CAPITA INCOME TO COMPARE STANDARD OF LIVING OVER TIME

1)       The composition of output may change. e.g. more defence-related goods may be produced and less spent on social services, more producer goods may be made and less consumer goods, and there may be a surplus of exports over imports representing investment overseas. Standards of living depend on the quantity of consumer goods enjoyed.

2)       Over time prices will change. The index of retail prices may be used to express the GNP in real terms but there are well known problems in the use of such methods.

3)       National Income may grow but this says nothing about the distribution of that income. A small group may be much better off. Other groups may have a static standard of living or be worse off.

4)       Any increase in GNP per capita may be accompanied by a decline in the general quality of life. Working conditions may have deteriorated. The environment may have suffered from various forms of pollution. These non-monetary aspects are not taken into account in the estimates of the GNP.

5)        Finally the national income increases when people pay for services which they previously carried out themselves. If a housewife takes an office job and pays someone to do her housework, national income will increase to the extent of both persons' wages. Similarly a reduction in national income would occur if a man painted his house rather than paying a professional painter to do the same. Changes of the above type mean that changes in the GNP per capita will only imperfectly reflect changes in the standard of living.

Posted Date: 11/28/2012 6:11:17 AM | Location : United States







Related Discussions:- Per capita income to compare standard of living, Assignment Help, Ask Question on Per capita income to compare standard of living, Get Answer, Expert's Help, Per capita income to compare standard of living Discussions

Write discussion on Per capita income to compare standard of living
Your posts are moderated
Related Questions
THE MONETARY ACCOUNT Also called official financing, this comprises the financial transactions of the government (handled by the central bank) needed to offset any net outflow

Consumer Demand is how much of something that consumers are wanting. A company requires to know the consumer demand so they know how much of a product to build.

TYPES OF UNEMPLOYMENT   A  person  can  be  either  in the labour force  or  not  in  the  labour  force  of  an economy. The person not  included  in  the  labour force includ

INSTRUMENTS OF CREDIT CONTROL The central bank employs several instruments to control aggregate credit in the country. While some instruments like the open market operations mi


Internal and External factors of business operation External factors : A firm can't exercise any control over these factors. Thepolicies, plans and programmes of the firm m

PUBLIC SECTOR BORROWING REQUIREMENT (PSBR) Public Sector Borrowing Requirement (PSBR) is the amount which the government needs to borrow in any one year to finance an excess e

It is presumed that every of the different combinations of capital and labour displayed in Table produces the same level of output, which is, 20 units. Combinations are such that i

Disadvantages of Perfect Competition There is a great deal of duplication of production and distribution facilities amongst firms and consequent waste. Economies of sc

Supply-side policies Supply-side policies are intended to increase the economy's potential rate of output  by increasing the supply of factor inputs, such as labour inputs and