Why should one be cautious in using per capita GDP as a means of comparing standards of living?
The formula for GDP per capita is simply Total GDP / Population This formula produces an average, but it says nothing what so ever about how that GDP is distributed across society. An example would be a country with a GDP per capita of $10,000 and 10 people. It could be that one person has the $100,000 and the over 9 have 0, or that everyone has $10,000. A way to look an equality within a country if the Gini coefficient. This coefficient measures how wealth is distributed across society. It is measured between 0 (perfect equality) and 100 (one person owns all the wealth). By combining GDP per capita and the Gini coefficient, you will get a better comparision of standards of living. Futhermore, when comparing two countries GDP, you will usually have to convert their value in national currency to either a current currency exchange rate or purchasing power parity exchange rate. This is to make up for the difference is standard cost of livings for the average consumer in the countries bein
