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Measuring living standards Cambridge IGCSE Economics revision

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In plain words

How well off are the people of a country? A first answer is to take everything the country produces and share it out equally on paper: real GDP per head. A country can be large and still poor if its output is split among a huge population.

But income is not the whole of a good life, so there are wider measures too.

5 things to know

  1. Real GDP per head = real GDP ÷ population. It is the average output, or income, per person.
  2. It is easy to calculate and compare, but it is an average, so it hides inequality. It also leaves out unpaid work, leisure time and pollution, and does not show what is produced.
  3. The Human Development Index (HDI) combines three things: income (per head), education (years of schooling) and health (life expectancy). It runs from 0 to 1, and a higher value means a higher level of development.
  4. The HDI is a wider measure than income alone, but it is also an average, and it still leaves out inequality, freedom and the environment.
  5. Living standards differ within and between countries because of differences in incomes, jobs, education, healthcare and natural resources.

Worked example

A country's real GDP is $600 billion and its population is 40 million. Calculate real GDP per head.

  1. Real GDP per head = real GDP ÷ population.
  2. 600 000 million ÷ 40 million = 15 000.
  3. Real GDP per head is $15 000.

Tips and tricks

  • GDP can rise while GDP per head falls, if the population grows faster than output. Check which one the question gives you.
  • The three parts of the HDI are income, education and health. Know one thing that it leaves out.
5 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

Measuring living standards: 5 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

  1. Real GDP per head is calculated as
    • real GDP × population
    • real GDP ÷ population (the answer)
    • population ÷ real GDP
    • real GDP − population

    It is output shared equally among everyone, on paper.

  2. Which is a component of the HDI?
    • the unemployment rate
    • the inflation rate
    • life expectancy (the answer)
    • the exchange rate

    Health, measured by life expectancy, is one of the three.

  3. Country X has an HDI of 0.92 and country Y has an HDI of 0.48. What does this suggest?
    • X has a higher level of development than Y. (the answer)
    • Y has a higher level of development than X.
    • X has a larger population.
    • Y has higher incomes.

    The closer to 1, the higher the development.

  4. Why might a rise in real GDP per head not mean that most people are better off?
    • Prices have been ignored.
    • The extra income may have gone to a small number of people. (the answer)
    • The population is included.
    • GDP includes services.

    An average says nothing about how income is shared.

  5. A country's real GDP grows by 2% and its population grows by 5%. What happens to real GDP per head?
    • It rises.
    • It falls. (the answer)
    • It stays the same.
    • It doubles.

    Output is shared among people whose number has grown faster than the output.

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