Per Capita Income, Real and Nominal Income

Per Capita Income (PCI) is the average income available per person, obtained by dividing national income by the country's mid-year population:

Because it adjusts for population size, PCI allows rough comparison of living standards between countries of very different sizes, and its growth over time is often used as a proxy for economic progress. But PCI is only an average, and averages hide distribution: a country's PCI can rise even while most of the gain accrues to a small share of the population. That is why per capita income is normally read alongside inequality measures and broader welfare indicators rather than treated as a complete measure of well-being on its own.

A second distinction every Business Economics student must master is nominal versus real income.

Nominal National Income (or income at current prices) values output at the prices prevailing in the year of measurement. Its weakness is that it rises both when output genuinely increases and when prices simply increase, so a rise in nominal income can be misleading.

Real National Income (or income at constant prices) values output at the prices of a fixed base year, so that any change reflects a genuine change in the volume of goods and services, not merely a change in the price level: …