Per Capita Income Formula

Formula to Calculate Per Capita Income

Per capita income can be described as an economic barometer which measures the income earned by an individual under a given set of economic unit say geographic region i.e. province, country, city, area, sector, etc. in a specified period say, during a year usually aiming to determine the average income earned by a person in order to evaluate the standard of living of group of persons living under that geographical region during specified period.

Per Capita Income Formula

Per Capita Income formula consists mainly of two parts i.e. Total income earned by all individuals and total population. It is calculated by dividing the total income of the area by total population living under that area.

Per Capita Income = Total Income of Area / Total Population
Per-Capita-Income-Formula

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For eg:
Source: Per Capita Income Formula (wallstreetmojo.com)

For example, the total income of all the individuals living in Boston is $80,00,000 and the total population is 1000,

Per Capita Income = $80,00,000 / 1,000 = $8,000

Explanation

  1. Per capita income consists mainly of two parts i.e. Total income earned by all individuals and total population. It is calculated by dividing the total income of the area by total population living under that area.
  2. The United States Census Bureau takes the total income for last year only for people above 15 years and above and then calculates the median average of the data.  It is calculated by dividing the total income of the area by its total population.

Examples of Per Capita Income (with Excel Template)

Let’s see some simple to advanced practical examples to understand it better.

You can download this Per Capita Income Excel Template here – Per Capita Income Excel Template

Example #1

The modern town has a total population of 100 people who are earning $4,50,000 per year engaged in primary agricultural activities and 5,000 people earning $35,000 per year engaged in manufacturing activities. You are required to calculate the per capita income of modern town.

Solution.

Per Capita Income = Total Income of Area/Total Population

Calculation of total income of modern town

Calculate Total Income
  • = (100 * 4,50,000) + (5,000 * 35,000)
  • = $4,50,00,000 + $17,50,00,000
  • Total Income = $220,000,000

And, Total population will be

Calculate Total Population
  • = 100 + 5000
  • Total Population = 5100

Calculation can be done as follows-

Per Capita Income - Example 1
  • = 220000000/5100
Per Capita Income - Example 1-1

Example #2

Suppose In a city there are 10,000 workers working at different pay scales.

Per Capita Income - Example 2

You are required to calculate per capita income

Solution.

Per Capita Income - Example 2-1
  • = (500 * $50,000) + (2,500 * $30,000) + (2,000 * $20,000) + (5,000 * $5,000)
  • = $2,50,00,000 + $7,50,00,000 + $4,00,00,000 + $2,50,00,000
  • Total Income = $16,50,00,000

Calculation of total population

Per Capita Income - Example 2-2
  • = 500+2,500+2,000+5,000
  • Total Population = 10,000
Per Capita Income - Example 2-3
  • = 16,50,00,000/10000

Per Capita Income will be –

Per Capita Income - Example 2-4

Example #3

Suppose there are 5 companies in a city. The number of employees and the income of the companies are as follows.

Calculate per capita income of the City.

Example 3

Solution: To arrive at the per capita income of these companies, we need to perform the necessary calculations shown below.

Calculation of total income

Example 3-1
  • = (25,000 + 2,00,000 + 80,000 + 50,000 +1,75,000 – 50,000 + 0)
  • Total Income = 4,80,000

And, calculate the total population

Example 3-2
  • = 800+500+100+200+400+500+100
  • Total Population = 2,600
Example 3-3
  • = 480000/2600
Example 3-4
Note: We also need to consider losses and zero income population for calculating PCI.

Calculator

Total Income of Area
Total Population
Per Capita Income
 

Per Capita Income =
Total Income of Area
=
Total Population
0
= 0
0

Relevance and Use

  • With the help of per capita income, one can get to know an area’s wealth or scarcity of wealth which is very helpful in arriving at important socio-economic decisions. We can also use it to ascertain the rank of countries or areas in ascending or descending order in accordance with their richness and wealth by knowing the average income of per person.
  • Per capita financial gain is additionally helpful in assessing an area’s affordability buying power. It is employed in conjunction with knowledge on land costs, for example, to assist in verifying if average homes are out of reach for the typical average family.
  • It is helpful for a businessman or organization for opening his business or store in a particular region since using this formula for ascertaining revenue from the population of the area. The organization may take the decision to open/not to open a store in areas having higher per capita income the company as compared to areas having lower one since it helps to evaluate chances of generating more revenue by selling their goods, as more per capita income more spending power of the town.
  • The government may take adequate socio-economic decisions for the development of particular areas based on PCI

Conclusion

  • Per capita income is the amount of money earned per person in a particular region or geographical area,
  • It is used to know the standard of living per person for a population of a region or geographical area.
  • It as a metric has limitations like it does not take into account inflation, financial gain inequality, poverty, wealth, or savings.
  • Helps in making business, socio-economic decisions by private/ government organizations.

This has been a guide to Per Capita Income Formula Definition. Here we discuss the formula for calculation of per capita income along with practical examples and downloadable excel template. You can learn more about financial analysis from the following articles –

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