IGCSE Economics Section Unit 5 Revision Notes (Summary) 2023

IGCSE Economics Section Unit 5 Revision Notes (Summary) 2023. Living Standards Living standards or standards of living refer to all the factors that contribute to a person’s well-being and happiness Measuring Living Standards  GDP per head/capita: this measures the average income per person in an economy. Real GDP per capita = Real GDP / Population Merits of using GDP per capita to measure living standards:  GDP is a useful measure of the total production taking place in the country, and so indicates the material well-being of the economy  it also takes population into consideration, adding emphasis on the goods and services available to individuals  since it is calculated on output, is a good indicator of the jobs being created  GDP data is readily available so is population data Limitations of using GDP per capita to measure living standards:  it takes no account of what people can buy using their incomes. A country with a high GDP per head may be no better off than a country with a low GDP per head, if there are far fewer products to choose from  similarly, GDP doesn’t consider changes in technology that can have a large impact on living standards. People might have had more income in the last decade but they couldn’t benefit from all the technology available today  distribution of income is very unequal in reality, so the GDP per head isn’t accurate. Some people might be very rich while others very poor, but the GDP per head will only give the average incomes  real GDP excludes the unpaid work people do for charities and voluntary organizations etc. Thus, it understates the total output  GDP also doesn’t differentiate between the positive and negative values economies place on different output/expenditure. For example, if the output rises because the sales of tobacco, alcohol or pornographic materials, it might show in the records as a rise in GDP per head but might not actually make people better off. Similarly, GDP might rise if the government has to rebuild after a natural disaster, which doesn’t mean living standards have risen  the official GDP figures can be overstated due to technical errors or by political manipulation to look good, and give a wrong picture of living standards  this measure doesn’t consider leisure activities, health and education levels, environmental quality- all that determines people’s happiness and well-being  in order to effectively compare GDP per head across countries, they need to be converted to a common currency and adjusted for differing purchasing power in different countries  comparing GDP per head can also be unreliable as GDP accounting methods can be different for different countries.