Why is GDP per capita commonly used as an estimate of the average standard of living in a country?

• A. It measures only the total output produced by businesses, excluding government and household production.
• B. It directly accounts for income inequality and non-market activities.
• C. It includes environmental quality and social welfare indicators.
• D. It measures the average income per person, reflecting the economic resources available to individuals.

Answer: (D)

Verified step by step guidance

1. Understand that GDP per capita is calculated by dividing the total Gross Domestic Product (GDP) of a country by its population. The formula is: \(GDP\ per\ capita = \frac{GDP}{Population}\).
2. Recognize that GDP represents the total market value of all final goods and services produced within a country during a specific period, reflecting the overall economic activity.
3. Interpret GDP per capita as an average measure of economic output per person, which serves as a proxy for the average income or economic resources available to individuals in the country.
4. Note that while GDP per capita does not directly measure factors like income inequality, environmental quality, or social welfare, it provides a useful summary statistic for comparing living standards across countries or over time.
5. Conclude that GDP per capita is commonly used as an estimate of the average standard of living because it reflects the average economic capacity of individuals to consume goods and services, which is closely related to their material well-being.