Per Capita GDP

GDP is the total market value, expressed in dollars, of all final goods and services produced in an economy in a given year, but GDP can also be viewed as “national income.” Because a nation is made up of people, national income can be divided by the population of the country to indicate average economic well-being of the people within a country. So, dividing a particular country's GDP by its population is an estimate of how much income, on average, the economy produces per person (per capita) per year. In other words, GDP per capita is an estimate of a nation's average standard of living.

Think about a pizza. If the pizza represents the value of the economy’s output, or the national income, dividing it into four slices leaves everyone with a very large slice. Taking another identical pizza and dividing it among 8 people, leaves everyone with a much smaller piece.

Speaking economically, if the pizza represents GPD, or national income, the people dividing pizza 1 have a higher standard of living than pizza 2.

But, in both cases, if we could grow the size of the pizzas, everyone’s slice can be a little larger. This reveals a key idea in economics – the key to a rising standard of living is a growing economy.