Cambridge International as and a level Economics Ebook

Comparison of living standards over time
Real GDP per head fi gures have traditionally been used as 
one of the main indicators of living standards. If a country’s 
real GDP per head is higher this year than last year, it is 
generally expected that the country’s inhabitants will be 
enjoying higher living standards. Th
is is oft en the case but 
may not always be so.
Real GDP per head is found by dividing total real GDP by 
the country’s population to give an average fi gure. Real GDP 
is not evenly distributed so, while it is possible that real GDP 
per head may rise, not everyone will be better off . Indeed, 
some people may even experience a fall in their income.
Th
e change in real GDP may not refl ect the true change 
in the quantity of goods and services that households can 
enjoy if the level of undeclared economic activity changes 
over time.
To assess changes in living standards, changes in the 
type of products produced and the ways in which they are 
made must be considered. During a war, output may rise 
because more weapons are being produced but not many 
people will say that the quality of their lives is improving. 
Th
e recruitment of more police to cope with more crime 
will increase real GDP but will be unlikely to cause people 
to feel better off .
More consumer goods and services, such as housing, 
food, clothing and transport, raise people’s living 
standards. A shift of resources from consumer products 
to capital goods will enable more consumer products to 
be produced and enjoyed but only in the future. However, 
in the short run if the economy is operating at the frontier 
of its production possibility curve, such a move will cause 
people to enjoy fewer consumer products. 
Figure 9.7
 shows 
a reduction in the output of consumer products in the 
short run but an increase in the long run.