what are the limitation of per capital income as an adequate index of economic development.? pls answer this question ..
Answers
Hello friends.
1.It does not indicate the disparities in the distribution of income. E.g. the wide gap between the incomes of extremely rich and very poor people.
2. It does not indicate long-term sustainability as non-renewable resources are liable to be exhausted.
3.The method of calculating per capita income also varies among countries. This, it is not highly reliable for comparisons.
Per capita income refers to the average income of individuals, in a particular area. The increase in per capita income has many limitations. Income per capita gets increased when the price of commodity gets diluted, and not because of productivity.
These are not a good sign of good economic conditions, for any nation, it is the indication of economic degradation of a nation.
hope it's helpful for you..
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Explanation:
Limitations of per capita income are :
(i) A rise in per capita income is due to rise in prices and not due to increase in physical output, it is not a reliable index of economic development.
(ii) National income rises but its distribution makes the rich richer and the poor poorer.
(iii) It excludes all non-marketed goods and services, even though they may be important for human happiness and better quality of life.
(iv) Rise in per capita income may be due to use of modern capital intensive technology in production which may be labour displacing in nature thus adversely affecting the poor masses.
(v) If rate of population growth, is higher than the rate of growth of national income, this will lead to fall in per capita availability of goods and services and economic welfare.
(vi) Contribution of commodity to economic welfare may be higher than its money value e.g., money value of salt, needle, thread, etc. included in national income is lower than their contribution to economic welfare.