Can someone please explain the difference between the GDP of a country and the GDP per capita of a country?
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Imagine China having a GDP of 17 trillion USD. That’s a lot.
Now imagine Luxemburg having a GDP of 85 billion USD. That’s quite a bit less. About 1/200th, actually.
However, China has more than a billion inhabitants, while Luxemburg barely has half a million. So China is 200 times more “powerful” than Luxemburg in economic terms, but needs to have 2000 times more inhabitants to achieve that.
Now which country is economically more developed? China or Luxemburg? That’s why you need GDP per capita. It gives you the wealth of a nation per inhabitant, not in total.
GDP per capita is GDP divided by the number of people in the country.
Imagine you have a country with a GDP of $1 trillion. That is, roughly speaking the amount of goods and services produced in the country.
Now is that country rich or poor?
That depends a lot on how many people live there. “Per capita” is basically a fancy way of saying “per person”.
If the country has a billion people, its GDP/capita is $1tn / 1bn = $1,000. On average, each person in the country produces $1,000 of goods or services. That’s not very much.
If the country has a million people, its GDP/capita is $1,000,000. That’s a lot! (Far more than any actual country.)
GDP per capita is just the country’s GDP divided by the its population. That’s what “per capita” means: “per person.”
Luxembourg and Tanzania, for instance, have roughly the same GDP, but Tanzania has almost exactly 100 times the population of Luxembourg, so even though both countries have the same total wealth, the average Luxembourger is about 100 times wealthier than the average Tanzanian.
GDP is total economic activity of a country, per capita divides that by number of residents in that country to show a per-person output figure.
The example in *Naked Economics* is, India has higher GDP than Israel, but Israel has higher GDP per capita than India.
Per capita means per person. Therefore it means divided by the population count.
With regular GDP, a country or subdivision can achieve a high GDP simply by having a high population. With GDP per capita, it is a rough measurement of how “rich” a country is because the amount is normalized by dividing it by the population.
(Note: To be more accurate, you need GDP per capita adjusted for purchasing power. Because the cost of living is different in different countries.)
GDP of a country measures how much stuff that country produces in a year. It can be used as an estimate for how ‘big’ a country’s economy is.
GDP per capita measures how much stuff, on average, a person within that country produces in a year. It can be used as an estimate for how ‘productive’ each person is. It also somewhat correlates to the amount of income that each person gets (since individuals can use their productivity as leverage for salary negotiations).
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