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5.1 Living Standards

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Revision Notes

5.1.1 Indicators of Living Standards
1. Real GDP per Head
Definition
Real GDP per head = total output (GDP) of a country ÷ population, adjusted for inflation
It shows the average income per person
Key Points
“Real” means inflation is removed
“Per head” means per person (average)
What it indicates
A higher real GDP per head ? generally higher living standards
A lower real GDP per head ? generally lower living standards
Advantages of Real GDP per Head
Easy to calculate and compare between countries
Gives a numerical measure of economic performance
Shows changes over time (economic growth)
Disadvantages of Real GDP per Head
Does not show income distribution (inequality ignored)
Ignores non-monetary factors (e.g. happiness, safety, pollution)
Ignores informal economy (unrecorded activity)
May not reflect quality of life (e.g. long working hours)
2. Human Development Index (HDI)
Definition
A composite index measuring quality of life
Components of HDI
Income ? GNI per head
Education ? years of schooling
Health ? life expectancy
Advantages of HDI
Includes non-income factors (health & education)
Gives a broader measure of living standards
Allows international comparison
Disadvantages of HDI
Still an average (hides inequality)
Limited indicators (does not include everything, e.g. freedom, environment)
Data may be inaccurate or outdated
Weighting of components may be subjective
5.1.2 Comparing Living Standards & Income Distribution
Living Standards
Definition
The level of wealth, comfort, and goods/services available
Income Distribution
Definition
How income is shared among individuals or groups
Reasons for Differences in Living Standards (Between Countries)
Economic Factors
Differences in natural resources
Level of industrialisation
Access to technology
Amount of investment
Human Factors
Levels of education and skills
Health of the workforce
Political Factors
Government policies
Stability (e.g. war vs peace)
Corruption levels
Other Factors
Population size and growth
Climate and geography
Infrastructure (roads, electricity, internet)
Reasons for Differences in Living Standards (Within a Country)
Differences in income
Access to education
Employment vs unemployment
Urban vs rural areas
Government redistribution policies
Reasons for Differences in Income Distribution
Unequal Income Distribution Causes
Differences in skills and education
Differences in occupation (e.g. doctor vs cleaner)
Ownership of assets (property, shares)
Inheritance
Discrimination (gender, race)
Unemployment
Government policies (tax and benefits)
Effects of Unequal Income Distribution
Poverty
Lower living standards for some groups
Social problems (crime, poor health)
Inefficient use of resources

IGCSE Economics Notes Living Standards  Interactive Revision 

 

Living Standards and Income Distribution - Fill in the Blanks

Click the highlighted blanks to reveal key definitions and ideas related to indicators of living standards, comparing living standards and income distribution in IGCSE Economics.

1Real GDP per Head

Real GDP per head is total output in a country divided by the
________ population
and adjusted for
________ inflation
.
“Per head” means per
________ person
.
A higher real GDP per head generally suggests a
________ higher
standard of living.
Real GDP per head shows the average
________ income
per person.

2 Advantages of Real GDP per Head

One advantage is that it is easy to
________ calculate
and compare between countries.
It gives a numerical measure of economic
________ performance
.
It can also show changes over
________ time
.

3 Disadvantages of Real GDP per Head

Real GDP per head does not show income
________ distribution
.
It ignores non-monetary factors such as happiness, safety and
________ pollution
.
It ignores the
________ informal economy
.
It may not reflect quality of life, for example long
________ working hours
.

4 Human Development Index (HDI)

HDI is a
________ composite index
used to measure quality of life.
One component of HDI is
________ income
, usually measured by GNI per head.
Another component is
________ education
, measured by years of schooling.
The third component is
________ health
, measured by life expectancy.

5 Advantages of HDI

HDI includes non-income factors such as health and
________ education
.
It gives a
________ broader
measure of living standards than income alone.
It allows
________ international
comparison.

6 Disadvantages of HDI

HDI is still an
________ average
, so it can hide inequality.
It uses only a limited number of
________ indicators
.
It does not include everything, such as freedom or the
________ environment
.
The data used may be inaccurate or
________ outdated
.
The weighting of components may be
________ subjective
.

7 Living Standards and Income Distribution

Living standards refer to the level of wealth,
________ comfort
and goods and services available.
Income distribution means how income is
________ shared
among individuals or groups.

8 Differences in Living Standards Between Countries

Living standards may differ because countries have different amounts of natural
________ resources
.
They may also differ because of different levels of
________ industrialisation
.
Access to
________ technology
and investment can affect living standards.
Levels of education and
________ skills
can cause differences in living standards.
The
________ health
of the workforce is also important.
Government
________ policies
and political stability can affect living standards.
Other influences include climate,
________ geography
and infrastructure.

9 Differences in Living Standards Within a Country

Within one country, living standards may differ because people earn different
________ incomes
.
Access to
________ education
can vary.
Living standards may be different for those in employment and those who are
________ unemployed
.
There may be differences between
________ urban
and rural areas.
Government redistribution
________ policies
can influence differences in living standards.

10 Reasons for Differences in Income Distribution

Income distribution can differ because people have different levels of skills and
________ education
.
Different
________ occupations
pay different wages and salaries.
Ownership of
________ assets
such as property and shares can create income differences.
________ Inheritance
can increase inequality.
________ Discrimination
can affect how income is distributed.
________ Unemployment
can reduce income for some people.
Government policies involving tax and
________ benefits
can affect income distribution.

11 Effects of Unequal Income Distribution

One effect of unequal income distribution is
________ poverty
.
It can lead to lower
________ living standards
for some groups.
It may cause social problems such as crime and poor
________ health
.
It may also cause an inefficient use of
________ resources
.

You need to know:

(a) Real GDP per head is GDP divided by population and adjusted for inflation.

(b) HDI includes income, education and health.

(c) Real GDP per head is useful but does not show income distribution or quality of life fully.

(d) HDI gives a broader measure of living standards but still has limitations.

(e) Living standards differ within and between countries for economic, social and political reasons.

(f) Income distribution differs because of education, occupation, asset ownership, inheritance, discrimination, unemployment and government policy.

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