Why do we use average income for comparing the countries what are its limitations?
Answers
We use average income known as per capita income because ...
It is the average of people's income earned throughout a year by economic activities this show economic values and growth...
It's limitations....
* It doesn't show the length and status of economic status....
* It doesn't show demographic profile level of a country...
We use averages because they are useful for comparing differing quantities of the same category.
For example, to compute the per capita income of a country, averages have to be used because there are differences in the incomes of diverse people. However, there are limitations to the use of averages. This does not show the distribution of thing between people. For an example, suppose in a country, the annual income of a rickshaw puller is Rs 8,000 while an MNC employee earns an annual package of Rs 12,00,000. The average income of this country, therefore, will be Rs 6,05,000. Here actual income or status remains unknown. One can clearly consider this as a rich country thereby ignoring the income disparity between two individuals. Averages are useful for comparison, they also hide disparities.